ACCT5014 Intermediate Corporate Accounting

School of Accounting ACCT5014 Intermediate Corporate Accounting Semester 1 2020

Individual or Group Assignment

(35%)

Due: Week 14 5pm Friday 29/5/2020

Magellan Bicycle Repairs & Service

(Trading as MBRS Pty Ltd)

© This Accounting Workbook titled Magellan Bicycle Repairs is the

copyright material of the author Dr Lisa Cullen

Magellan Bicycle Repairs & Service (MBRS Pty Ltd)

Background

Magellan Bicycle Repairs and Service (MBRS) was registered as a company on 1 July 2017 under the name MBRS Pty Ltd and is involved in a mobile bicycle repair service and has a business premises where clients can drop their bicycle off for repairs and there is also a business office. The business holds supplies they need for repairs and they also sell inventory. This inventory is a small select range of bicycle repair products and bicycle parts. They do not currently sell bicycles. The business is located in Western Australia (WA) at premises in Subiaco. Supplies for repairs and inventory for sale are sourced locally and some speciality products are imported from overseas.

The Managing Director (MD) is Mr Marko Polo. He is the majority shareholder, holding 70% of the shares. The remaining 30% is held by his wife Mrs Cherry Polo (10%) and his two children Ms Frances Polo (10%) and son Mr Henry Polo (10%). Mr Marko Polo is listed as the only director of the company. All shares are classified as ordinary shares and dividends are determined at the end of each year by the MD. The MD is also paid a salary of $75,000 per annum (not including superannuation and FBT).

MBRS Pty Ltd is classified as a small proprietary company under the requirements of the Corporations Act 2001, as evidenced by operating revenue being less than $25 million, gross assets are less than $12.5 million and they employ less than 50 staff. [3 full time staff including the MD and 4 part time staff are currently employed]. Being classified as small, they are not required to prepare financial statements in accordance with Australian Accounting Standards. However, they are required to keep sufficient records for financial statements to be prepared and audited if required and for taxation purposes.

Mr Marko Polo has contracted Theon Accounting Services to assist him in keeping better financial records. He has decided he wants to use the Xero accounting system and is going to pay $5,000 to complete the following;

1. Set-up accounts in XERO.
2. Process the June 2019 transactions for the company.
3. Make the necessary adjustments/corrections as required with information provided. Any additional adjustments involves further consultation and may incur additional fees.
4. Provide a report as at 30/6/2019 outlining the financial performance of Magellan Bicycle Repairs and Service and make suggestions for improvement and/or items outstanding that may require further investigation.

[NOTE: A Professional Presentation is required]

Assignment requirements

Using Xero (online trial account), Microsoft Excel and Word students are required to:

1. Set-up a company in XERO with opening conversion balances as provided on 31^st May 2019.
2. Process all the transactions listed for the month of June 2019 in Xero.
3. Students are to make all the necessary assumptions, corrections and recommendations as required. This is part of decision-making and part of the assessment.
4. When entering transactions, to ensure students/groups are completing the work themselves each group must do the following as a part of data entry (or upload file if applicable);

1. The organisation name when set-up should include ONE students ID in the title [EG: MBRS Pty Ltd (1853365) ]
2. Each new transaction for June must include the student ID in either the “Reference, Notes, Description, or Narration” sections to the transactions as outlined in the Week 7 or 8 accounting technologies lecture and tutorials. Any student ID is acceptable as long as it is an ID of a member of the same group.
3. IMPORTANT: Failure to comply with a) and b) above may result in a grade reduction of a minimum of 20% for failing to follow instructions. Further, students will be closely reviewed for collusion.

5. Prepare a concise report for the managing director explaining the financial performance of the company. The report should follow the format of an Executive Summary and should be no more than 2 pages (using 1½ spacing and size 11 font). Financial statements must be included in the report and shown in an Appendix to support the Executive Summary. The Appendix is in addition to the 2 pages.
6. This assignment can be completed individually or in a group with 2-4 members.
7. Only 1 group member is to upload the final assignment through the Turnitin link provided for the group.
8. Each other group member must upload a signed group assignment sheet to blackboard. (This is required to attach an online marking rubric for feedback). Students failing to do this risk receiving a 10% reduction for failing to follow instructions and students will not be able to see the marking rubric and comments.
9. Students are to assume they need to submit any relevant documents that may be required as if this was a “real paying client” and consulting contract.
10. Bonus marks may be achieved for excellent submissions where students go above and beyond their peers and marker expectations.
11. Assignments are to be submitted via the Turnitin link provided in Blackboard.
12. Assignment coversheets are required and will be made available on Blackboard.
13. Students are to submit the following:
    1. 1 x PDF file or Word file with signed group assignment coversheet (unless individual then individual coversheet), that includes Executive Summary (2 pages) and Appendix with final financial statements and other reports as listed in the marking guide along with any notes that would be submitted to the managing director and any other documents deemed necessary to fulfil the contract.
    2. As per note 8 above upload a coversheet to your student ID.
    3. IMPORTANT: Students who fail to submit the Detailed Account Transaction Report from 31^st May 2019 to 30 June 2019 (sorted appropriately) may receive ZERO for the assessment.
    4. Students are reminded that they will lose all data in their trial account after 30 days. Students should make sure they download all relevant information in case the marker requires a student/group to validate their submission with further evidence.

Marking Guide

	Theon Accounting Services	Marks
Report (2 Pages)	Content of Report/Executive Summary Presentation & Layout Spelling and Grammar Correct Profit figure Correct figures for Assets, Liabilities and Equity Note: Financial Statements in Final Report submitted by students should be rounded to whole numbers.	10 20 10 5 5 50 Marks
Financial Reports (added to Appendix)	Trial Balance as at 31st May 2019 Final Adjusted Trial Balance as at 30 June 2019 Statement of Profit and Loss for the period ended 30 June 2019 Statement of Financial Position/Balance Sheet as at 30 June 2019 Aged payables as at 30 June 2019 Aged receivables as at 30 June 2019 Detailed Account Transaction Report (dates to include all transactions 31st May – 30 June 2019 and should be appropriately sorted)	2 2 2 2 2 2 8 20 Marks
		70 Marks ÷ 2 = 35
	Student mark out of 35

Magellan Bicycle Repairs and Service

TRIAL BALANCE as at 31^st May 2019

ACCOUNT	Code	TYPE	Tax Rate	DEBIT	CREDIT
Cash at Bank	90	Bank	BAS Excluded	270,033
Savings Account	91	Bank	GST Free Income	94,500
Accounts Receivable	100	Current Asset	BAS Excluded	22,222
Office Supplies	102	Current Asset	GST on Expenses	3,120
Repair Supplies	103	Current Asset	GST on Expenses	22,680
Inventory – Bicycle Repair Products	104	Current Asset	BAS Excluded	48,000
Interest receivable	105	Current Asset	BAS Excluded	–
Prepaid rent – premises	110	Current Asset	BAS Excluded	–
Prepaid Insurance	112	Current Asset	BAS Excluded	5,000
Office Furniture & Fixtures	200	Fixed Asset	GST on Expenses	15,800
Repair Equipment	201	Fixed Asset	GST on Expenses	55,000
Office Equipment	202	Fixed Asset	GST on Expenses	25,600
Vehicle	203	Fixed Asset	GST on Expenses	175,500
Computers	204	Fixed Asset	GST on Expenses	–
Less Acc Depn – Office Furniture and Fixtures	220	Fixed Asset	BAS Excluded
Less Acc Depn – Repair Equipment	221	Fixed Asset	BAS Excluded
Less Acc Depn – Office Equip	222	Fixed Asset	BAS Excluded
Less Acc Depn – Vehicle	223	Fixed Asset	BAS Excluded
Less Acc Depn – Computers	224	Fixed Asset	BAS Excluded
Accounts Payable	300	Current Liability	BAS Excluded		8,640
Interest Payable	301	Current Liability	BAS Excluded		3,000
Salaries Payable	302	Current Liability	BAS Excluded
Superannuation Payable	303	Current Liability	BAS Excluded
Unearned Revenue – vouchers	304	Current Liability	BAS Excluded		3,600
PAYG Withholdings payable	305	Current Liability	BAS Excluded		7,424
Annual Leave Accrual	310	Current Liability	BAS Excluded
Company Tax Payable	320	Current Liability	BAS Excluded
GST		Current Liability	BAS Excluded		42,542
Provision for Long Service Leave	410	Non-current liability	BAS Excluded
Loan, non-current (8% pa 1 Jan 2019)	420	Non-current liability	BAS Excluded		150,000
Capital	500	Equity	BAS Excluded		250,000
Retained earnings		Equity	BAS Excluded		75,725
Repair Service Revenue	600	Revenue	GST on Income		468,000
Sales Revenue – Repair Product Sales	601	Revenue	GST on Income		285,000
Sales Returns and Allowances	605	Revenue	GST on Income	3,456
Interest Revenue	608	Other Income	BAS Excluded		2,950
Discount Received	610	Direct Costs	GST on Income		6,480
Purchases	700	Direct Costs	GST on Expenses	145,000
Purchase Returns and Allowances	701	Direct Costs	GST on Expenses		4,080
Freight inwards	702	Direct Costs	GST on Expenses	9,840
ACCOUNT	Code	TYPE	Tax Rate	DEBIT	CREDIT
Discount Allowed	703	Expenses	GST on Expenses	5,483
Salary Expense	800	Expenses	BAS Excluded	211,296
Salary Expense – PAYG	801	Expenses	BAS Excluded	29,626
Superannuation Expense	802	Expenses	BAS Excluded	20,074
Rent Expense – premises	803	Expenses	GST Free Expenses	26,400
Gas & Electricity Expense – premises	805	Expenses	GST on Expenses	8,856
Depreciation Expense – Repair Equipment	807	Expenses	BAS Excluded	–
Depreciation Expense – Office Furniture	808	Expenses	BAS Excluded	–
Depreciation Expense – Computers	809	Expenses	BAS Excluded	–
Depreciation Expense – Vehicle	810	Expenses	BAS Excluded	–
Depreciation Expense – Office Equipment	811	Expenses	BAS Excluded	–
Supplies Expense – Office	830	Expenses	GST on Expenses	3,645
Repairs Supplies Expense	831	Expenses	GST on Expenses	65,900
Vehicle Maintenance Expense	832	Expenses	GST on Expenses	6,400
Vehicle Petrol Expenses	833	Expenses	GST on Expenses	20,150
Interest Expense	835	Expenses	GST Free Expenses	3,000
Insurance Expense	836	Expenses	GST on Expenses	7,000
General Expenses	850	Expenses	GST on Expenses	6,360
				1,307,441	1,307,441

Locked Accounts to be reviewed manually

Transactions for the month of June 2019 are as follows: (ALL amounts are GST inclusive)

Please note: these are NOT general journal entries they need to be entered through Xero correctly. For example, use spend money, receive money or create invoices for accounts receivable or payable etc.

Date
JUNE	Transaction
1	Purchased inventory from Zen & Co for $2,900 terms 2/10, n30
1	Received and banked cash from customers for $8,400
1	Purchased 2 new computers for $5,000 each. (The useful life is 5 years with a scrap value of $500 each)
2	Jasmine Fox paid her account in full (no discount).
2	Sold inventory to Dana Tornado for $1,750 on credit terms, n30.
3	Paid Zen & Co account in full (no discount received for amounts owing 31st May 2019)
3	Received invoice and paid monthly electricity for premises, $1,099
3	Paid $1,500 to Bicycle Rules Co (no discount received)
3	Paid rent for June and 2 months in advance for premises $7,200
3	Banked cash from customers for Repair services for $4,500
3	Received Cash for inventory sales of $920
6	Purchased inventory from Zen & Co for $8,000, terms 2/10, n30
6	Purchased Office Supplies for $790 from Officeworks for cash
6	Purchased Repair Supplies from Mystique Ltd for $1,500 on credit terms 2/10, n30
6	Received cash from Lara Smith in full settlement of her account (no discount)
6	Banked cash from customers for repair services for $4,950
7	Paid $50 direct debit for freight costs to GethereFasta Co
8	Banked cash from customers for repair services for $8,500
8	Paid Zen & Co account in full
9	Purchased inventory from Zen & Co for $3,250, terms 2/10, n30
10	Sold inventory on credit to Mona Wong for $1,280 (Original cost $895)
12	Issued credit note to Mona Wong for $250, for defective inventory returned. (Original cost was $175 on 9th June from Zen and Co and was returned for credit).
16	Paid fortnightly wages $8,720 Salary and $829 Superannuation. This is also $1,657 PAYG yet to be paid to the ATO.
16	Paid Fortnightly petrol account for $589
16	Retuned more damaged stock purchased on 9th June to Zen & Co for $410 for credit
23	Received payment from Brian Fox for balance owing on his account (no discount)
30	Received Cash from customers for Repair services for $9,500
30	Purchased new repair equipment for $13,000 from Razor Inc on credit terms of 2/30 and n60. (The useful life is 10 years with a scrap value of $3,000)

Additional Information

1. Company information is provided in Appendix A.
2. Appendix B outlines selected contacts information.
3. Repair Supplies are not inventory for separate sale they are supplies used as part of bicycle repair services provided to clients.
4. Inventory of Repair Products is managed using a periodic system and reviewed manually at the end of each month to ensure stock is turning over and use-by-dates are managed.
5. Depreciation for fixed assets has not been accounted for in the 2018/2019 financial year. The following information is available on assets up to May 2019 to update the company records. All assets are depreciated using straight-line method of depreciation. Assume accounting depreciation equals tax depreciation so there are no associated deferred tax assets/liabilities associated with fixed assets. For the purposes of this assignment, each group of fixed asset as at 31 May 2019 can be added as a single item. New assets are to be added separately.

Depreciation Schedule	Purchase Date	Cost (inc GST)	Useful Life (years)	Scrap Value
Office Furniture & Fixtures	1/07/2018	15,800	15	2,000
Repair Equipment	1/07/2018	55,000	7	8,000
Office Equipment	1/07/2018	25,600	5	3,500
Vehicles (x 3)	1/07/2018	175,500	5	36,000

6. Accounts receivable – the company does not generally offer customers credit terms or discounts. A select few good customers have been offered payment terms and prices are negotiated at the time of repair service. Customers can also pre-purchase advance repair and service vouchers that offer a 15% discount and are valid for 12 months. Other vouchers are offered from time to time to advertise new services these are accounted for on a case-by-case basis. Vouchers sold and unused are recorded as a part of unearned revenue. All vouchers expire in 12 months.
7. PAYG tax withheld is paid quarterly to the Australian Tax Office and reconciled at 30 June tax year-end. Payroll is not fully integrated in the current Xero FMIS system for the company so adjustments to salaries can be made through the general ledger.
8. Sales of inventory and revenue from repair services attract 10% GST.
9. Tax is payable at 27.5% on taxable profit.
10. The company operates with a financial year-end 30 June.
11. Business BAS statements for GST are prepared annually as at 30 June.

End of Financial year adjustments outstanding – General Journal entries required

1. Office Supplies on hand at 30 June 2019 was $2,455.
2. Repair Supplies on hand at 30 June 2019 was $21,650.
3. Interest owing on a short-term deposit in the Savings Account at the bank not yet received was $2,200.
4. Depreciation requires adjusting for the year.
5. A loan was taken out on 1^st Jan 2019 and interest expense and payable requires adjusting. The amount recognised in interest expense account 835 as at 31^st May 2019 is only partly paid, the remaining amounts are outstanding. Annual interest is at 8% or $12,000 per annum.
6. $2,500 of the unearned revenue vouchers for repair services only has now been earned.
7. Salaries of $13,173 and $1,252 Superannuation and additional PAYG tax $4,898 were unpaid as at 30 June 2019 and require accrual.
8. Annual leave accrual for fulltime staff requires adjusting. The accrual estimate is $2,650.
9. Long service leave entitlements do not vest for 10 years therefore no provision has been created, as amounts are immaterial after just 2-year’s operation.
10. Insurance of $12,000 was paid for 12 months on 1 July 2018 and has not been adjusted as at 30 June 2019.
11. The company uses a periodic inventory system. A count of inventory on hand indicated the balance of Repair inventory as at 30 June 2019 was $29,250. Refer Appendix C for further information on Inventory.

Appendix A

Company Information:

ACN: 25 354 565

ABN: 84 111 122 223

Tax file number: 789 011 567

Registered for GST – prepares BAS annually at 30 June.

Postal Address:

PO Box 987

West Perth WA 6005

Street Address:

10 Rokeby Road

Subiaco WA 6008

 08 95689963

 Marko@ MagellanBicycles.com.au

 www.Magellan Bicycles.com.au

Appendix B

Contact information:

[Previous sales are for Account 600 Repair Service Revenue and Account 601 Repair Product Sales]

Accounts receivable summary as at 31st May	Accounts payable summary as at 31st May
Jasmine Fox (A600) $ 2,480 Brian Fox (A600 $ 4,200 Lara Smith (A600 $ $ 4,622 Herbie Wong (A600 $ $ 6,700 Shane Mason (A600 $ $ 4,220 $22,222	Zen & Co $ 4,780 Bicycle Rules Co $ 3,860 $8,640

Accounts receivable

Jasmine Fox Email: J_Fox@foxy.com.au Phone: 0475869303 Amount owing $2480 Due date: 5 June 2019	Brian Fox Email:BFoxxy@yahoo.com Phone: 0892457723 Amount owing $4200 Due date: 9 June 2019	Lara Smith Email: LSmitty@bogus.com.au Phone: 0456982369 Amount owing $4622 Due date: 26 May 2019
Herbie Wong Email: Herbie@gopro.com.au Phone: 0475986502 Amount owing $6700 Due date: 5 June 2019	Shane Mason Email: SMason@yahoo.com Phone: 0447896663 Amount owing $4220 Due date: 9 June 2019	Dana Tornado Email: DNado@iinet.com.au Phone: 0425698963 Amount owing $NIL
Mona Wong Email: MonaW@bigmuscles.com.au Phone: 0445896523 Amount owing $NIL

Contact information: (cont…)

Accounts payable

Zen & Co Email: Sales@zenandco.com Contact person: Wendy Jones Phone: 0892456679 Address: 24 Someplace Rd Subiaco WA 6008 ABN: 11 000 111 222 Bank BSB: 123456 Bank A/C #: 222356 Amount owing $4780 Due date: 5 June 2019	Bicycle Rules Co Email: Sales@Hairrule.com.au Contact person: Barry Gibb Phone: 0892564489 Address: 44 Away Corner Osborne Park WA 6229 ABN: 11 000 111 333 Bank BSB: 125489 Bank A/C #: 55589632 Amount owing $3860 Due date: 9 June 2019	Officeworks Email: MJackson@officeworks.com.au Contact person: Michael Jackson Phone: 0895632214 Address: 94-97 Hay Street Subiaco WA 6008 ABN: 11 000 111 444 Bank BSB: 066125 Bank A/C #: 41985762 Amount owing: NIL
Synergy Email: Elvis@Synergy.com.au Contact person: Elvis Presley Phone: 0892569978 Address: PO Box 6154 Perth WA 6000 ABN: 11 000 111 555 Bank BSB: 065552 Bank A/C #: 006987521 Amount owing: NIL	Mystique Ltd Email: RodS@Mystique.com.au Contact person: Rod Stewart Phone: 0892697745 Address: PO Box 7890 West Perth WA 6001 ABN: 11 000 111 666 Bank BSB: 126987 Bank A/C #: 069875263 Amount owing: NIL	Rodgers Real Estate Email: PatKerry@RRE.com.au Contact person: Patty Kerry Phone: 0893695589 Address: 54 Rodgers Ave Floreat WA 6008 ABN: 11 000 111 777 Bank BSB: 068975 Bank A/C #: 1236985741 Amount owing: NIL
GethereFasta Co Email: Rick@GFC.com.au Contact person: Rick Fasta Phone: 0447256893 Address: 16 Havelock St West Perth WA 6001 ABN: 11 000 111 888 Bank BSB: 159875 Bank A/C #: 2226987 Amount owing: NIL	Razor Inc Email: Bazil@laserinc.com Contact person: Bazil French Phone: 0446893111 Address: 22 Lester Square West Perth WA 6001 ABN: 11 000 111 999 Bank BSB: 066589 Bank A/C #: 00985479 Amount owing: NIL

Appendix C

Accounting for Periodic Inventory – Repair Products

Reminder: Journal entries under a periodic inventory system (notice inventory account is not used only adjusted at end with a stocktake).

Purchases of inventory DR Purchases DR Freight inwards DR GST Outlays CR Cash or Accounts payable CR Discount Received Purchase returns and allowances DR Cash or A/C Payable CR GST Outlays CR Purchase Returns and Allowances

Sale of inventory DR Cash/ A/C Receivable DR Discount Allowed CR Sales Revenue CR GST Collections Sales returns and allowances DR Sales Returns & Allowances DR GST Collections CR Accounts Receivable/Cash

To ensure the inventory balance is correct a manual entry is required under a periodic system following a stocktake. In this instance we aren’t using a Cost of goods sold account so we will apply the movement in the inventory to the purchases account.

DR Inventory (balance at end – stocktake balance) $AA

CR Purchases $AA

(Add closing inventory balance)

DR Purchases $BB

CR Inventory (balance at beginning) $BB

(Reverse opening inventory balance)

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