University Accounting Fundamentals Assignment Solution - Finance

This document presents a comprehensive solution to an accounting fundamentals assignment, covering key concepts such as journal entries, trial balance, and financial statement preparation. The solution includes detailed explanations and calculations for depreciation, prepaid expenses, and bad debts. It also features a profit and loss account, balance sheet, and analysis of the importance of the final report to various stakeholders, including shareholders, financial institutions, managers, and others. Additionally, the assignment delves into the comparison and contrasting of liquidity and profitability, providing a clear understanding of these crucial financial metrics. The solution is designed to provide students with a thorough understanding of accounting principles and their practical application in financial analysis.

Accounting Fundamentals

Table of Contents
Question 1........................................................................................................................................3
a...................................................................................................................................................3
b...................................................................................................................................................3
c. .................................................................................................................................................4
Question 2........................................................................................................................................6
Presenting an analysis with regard to an importance of the final report to the users..................6
Question 3........................................................................................................................................8
d) Journal Entries........................................................................................................................8
e) Updated Trial Balance............................................................................................................9
f) Financial Statements as on 31 December 2017.....................................................................10
Question 4 .....................................................................................................................................11
Comparing and contrasting liquidity and profitability .............................................................11
REFERENCES..............................................................................................................................14

Question 1
a.
Journal
Sr. no. Particulars Debit Credit
2
Depreciation on
motor vehicle A/c
Dr. 11670
To Accumulated
depreciation a/c 11670
Depreciation on
equipment A/c Dr. 900
To Accumulated
depreciation a/c 900
3
Telephone
expense A/c Dr 180
To outstanding
telephone bill A/c 180
4
Prepaid Insurance
A/c Dr. 840
To Insurance A/c 840
5
Income tax
expense A/c Dr. 1500
To income tax
payable A/c 1500
Total 15090 15090

b.
Trial balance at
31st December
2019
Particulars Debit Credit
Accounts payable 25680
Accounts receivable 30700
Carriage inwards 1840
Computer equipment at cost 4500
Carriage outwards 3280
Drawings 26000
Electricity 2480
Loan interest 300
Provision for doubtful debts 450
Insurance 2520
Motor vehicle at cost 53900
Capital 48000
Opening inventory 13200
Accumulated depreciation- Motor vehicle 26670
Accumulated depreciation- computer equipment 3540
Petty cash 50
Bank overdraft 2880
Wages 67440
Purchases 126800

Rent 23760
Sales 256400
Telephone 1620
Long term loan 8000
Closing stock 14400
Income tax 1500
Prepaid insurance 840
Outstanding telephone 180
Income tax payable 1500
Total 376580 376580
c.
Profits and loss account for
year ended 31st June 2019
Particulars Details Amount
Sales 256400
Less : carriage inward 1840
Net sales 254560
Less : COGS - 122320
Opening stock 13200
purchases 126800
Less : carriage outward 3280 123520
Closing stock 14400
Gross profit 132240
less: operating expense

Electricity expense 2480
petty cash 50
wages 67440
rent 23760
Insurance 2520
telephone [phone]
Operating profit 35990
less: interest expense 300
Profit before tax 35690
Less : income tax 1500
Net profit 34190
Balance sheet at year ended
31st June 2019
Particulars Details Amount
Capital 48000
add: profits 34190
less: drawings 26000
56190
Current liability
Accounts payable 25680
Outstanding telephone bill 180
Income tax payable 1500
Accumulated depreciation-
Motor vehicle 26670
Accumulated depreciation-
computer equipment 3540
Bank overdraft 2880 60450
Non-current liability

Long term loan 8000
Provision for doubtful debts 450 8450
Total liabilities 116640
Fixed assets:
Computer equipment 4500
Motor vehicle 53900 58400
Current assets :
Accounts receivable 30700
Prepaid insurance 840
Closing stock 14400
Opening inventory 12300 58240
Total assets 116640
Question 2
Presenting an analysis with regard to an importance of the final report to the users
The purpose of final report is to facilitate an information about financial position and
performance and the changes that occurred in financial position of an entity counted as useful to
wide range of the users for making appropriate economic decisions. Final report facilitate a
meaningful information to the different kinds of users that are as follows-
Shareholders- They make use of the financial statements for assessing return and risk of
their investment within the company in order to investment decisions on the basis of analysis.
They use the statements for evaluating their wealth and for analysing that their holding is
profitable or not.
Financial institutions- Banks review the accounting information for deciding whether in
granting loan or the credit to business organization. They act as the key users for analysing
financial state of the business for identifying probability of the bad loan (Lakis and
Masiulevičius, 2017). Any kind of decision for lending need to be supported by adequate asset

base and the liquidity. This reporting helps the banking institution in anticipating an ability of
borrower in paying back the loaned funds and the related interest charges.
Managers- They need the financial information for managing routine affairs of the
corporation by analysing their financial performance & health so that they could be able to take
operational decisions in appropriate manner. They require such information for understanding
the liquidity, profitability and the cash flows of an entity for each and every month so that it
could make the financing & operational decisions regarding business.
Prospective investors- They are the main parties who need financial informations for
tracking the performance of their investment. They act as the owners of business and needs
accounting related data for deciding whether to invest or withdraw the investment made by them.
With the use of financial information an investor could assess the viability of the project and
might predict the future dividends on the basis of the profits disclosed or reported in the
statement. Furthermore, it also enables in determining the risk attached with an investment that
may gauged from final reports. For example- fluctuating profits reflects higher risk and
therefore, it provides as the basis for an investment decisions of the potential investors.
Suppliers- they need the information for analysing credit worthiness of the business and
in ascertaining whether to supply the goods on the credit terms or not. They require to know if
they would be repaid on time and that the credit terms are been set as per analysis of customer's
financial state. Thus, they would be requiring the statement for the purpose of deciding whether
it is safe for extending the credit to the firm or not.
Employees- They use the final report for computing the profitability of the company and
its conditions on the future remuneration and the security of job. An entity might elect for
facilitating its financial information to the employees with detailed explanation of the
information that a document contains. This could be used for increasing level of the employee
involvement and in understanding the business.
Customers- When the customer selects the supplier for major contracts, it needs to review
their final report initially for judging or measuring financial capability of the supplier for
remaining within the business for long enough in providing proper goods and services mandated
in a contract. This helps them to investigate whether the supplier is having adequate resources for
ensuring steady supply of the goods in the future. This specially vital or important where
consumers is more of dependent on the supplier for specialized element.

Public- They might have seen as interested in effects of the firm on an economy, local
community and an environment. They are the major users of company's financial information
because they are interested in knowing the performance of the firm in overall industry so that
they could buy the products of best performing entity and could determine the firm which is
leading in the market.
Competitors- They compare their financial health or performance with the rival company
for learning and developing the strategies in improving their competitiveness. This could help the
competitors in achieving the competitive edge or advantage against their respective rivalry
organizations. An entity that are competing against the business would attempt for gaining access
to its final report for the purpose of evaluating its financial condition. Knowledge that they gain
can change their competitive measures or the strategies.
Government- It is an external party who requires the accounting information for
identifying that the firm is working in compliance with all the rules and regulations and is paying
adequate taxable amount within the time frame or not. Through the use of final report they could
determine accuracy hos the tax that is declared in tax returns. They also keep a track on the
economic progress through an assessment of the final report of the business from different
segment of an economy.
Investment analyst- External analysts desires to see the final report for the purpose of
deciding whether they must recommend the security of an organization to their respective clients.
Rating agencies- This kind of rating agency would require a review of final report for the
purpose of giving credit rating to company as the whole or to their securities.
Unions- They need final report for evaluating an ability of the business in paying a
benefit and the compensation to union members to whom they represent.
Thus, these are the external and internal users who show a keen interest in the financial
information of the company in making the best possible decisions (Voss, 2019). Financial
reporting plays a crucial role for the stakeholders in calculating the performance of company. It
helps the management in communicating the previous success and the future business
expectation. It enables the business in making suitable decisions and helps in indicating the
tendencies & trends by showing the way in which an entity is gathering money and the rate at
which the creditors are been paid.

Question 3
d) Journal Entries
Journal Entries
Particulars Debit Credit
ii)
Depreciation 384
To Accumulated Depreciation – Fittings 384
(4800*8%)
Depreciation 1000
To Accumulated Depreciation – Buildings 1000
(30000 / 10)
iii)
Prepaid Rates 360
To Rates 360
iii)
Bad debts 600
To debtors 600
Provision for debtors 600
To Profit or loss 600
iv)
Provision for debtors 282
To debtors 282
(9400*3%)
v)

Drawings 250
To Cash 250
e) Updated Trial Balance
Trial Balance
Particulars Debit Credit
Fittings 7300
Accu deprn – Fittings 2884
Buildings 30000
Accu deprn – Buildings 7000
Inventory 15000
Trade Receivables 9400
Allowance for doubtful debts 482
Cash in hand 50
Cash in bank 1250
Trade Payables 18000
Capital 19050
Drawings 5000
Purchases 80000
Revenue 120000
Wages 12000
Advertising 4000
Rates 1440
Prepaid Rates 360
Bank charges 200
Depreciation 1384
Total 167416 167416

f) Financial Statements as on 31 December 2017
Income Statement
Revenues 120000
Expenses
COGS 74000
(15000+80000-21000)
Wages 12000
Advertising 4000
Rates 1800
- Prepaid expense -360
Bank charges 200
Bad debts 600 92240
Net Income 27760
Statement of Financial Position
ASSETS
Non Current Assets
Fittings 7300
Buildings 30000
37300
Current Assets
Trade Receivables 9400
Less :Allowance for doubtful debts 482 8918
Cash in hand 50
Cash in bank 1250
Inventory 21000