Accounting For Business Subject BAP 12 Assignment

Accounting For Businesssubject Bap 12assignmentthis Assignment Is Wor

Account for the fundamental accounting procedures based on the provided financial data, including preparing adjusted trial balances, income statements, and balance sheets; performing financial ratio analysis; evaluating internal controls; explaining depreciation methods; recording equity transactions; analyzing capital investment alternatives; and conducting cost-volume-profit (CVP) analysis. The assignment includes multiple questions covering practical application of accounting principles, financial analysis, internal control assessment, and decision-making processes.

Paper For Above instruction

Accounting forms the backbone of business operations, providing essential information for decision-making, performance evaluation, and compliance. This comprehensive analysis addresses critical aspects of accounting, from adjusting trial balances to financial ratio analysis, internal control evaluation, asset depreciation, equity management, investment appraisal, and CVP analysis. Each section demonstrates practical application and theoretical understanding, essential for robust financial management and strategic decision-making in business.

Question 1: Adjusted Trial Balance and Financial Statements Preparation

Given the unadjusted trial balance for James Trading Pty Ltd as at 30 June 2011, and the additional unrecorded entries such as prepaid rent, accrued interest income, legal expenses, inventory valuation, and revenue recognition for services, the task involves adjusting the trial balance accordingly. These adjustments ensure that the financial statements reflect the true financial position and performance of the company for the period.

The key adjustments involve recognizing prepaid rent expenses, accrued interest income, estimated legal expenses, inventory valuation at lower of cost or net realizable value, and revenue recognition for services delivered over the period. After performing these adjustments, the final trial balance will serve as the basis for preparing an income statement and a statement of financial position, enabling stakeholders to assess the company's profitability and financial standing accurately.

Question 2: Financial Analysis of Luke Incorporated Pty Ltd

The financial data for Luke Incorporated, including the profit and loss statement and balance sheet, is analyzed to evaluate liquidity and performance. Liquidity ratios such as the current ratio and quick ratio assess short-term solvency, while profitability ratios like gross profit margin, net profit margin, and return on equity measure overall efficiency and profitability. Additionally, activity ratios like inventory turnover and receivables turnover offer insights into operational efficiency.

For example, the current ratio, calculated as current assets divided by current liabilities, indicates the company's ability to meet short-term obligations. The gross profit margin (gross profit divided by sales) reflects profitability from core operations. Return on equity (net income divided by shareholders' equity) evaluates how effectively equity investments generate profits. The analysis culminates in a concise report recommending whether the business is financially sound, offering insights for potential investors or buyers.

Question 3: Internal Control Weaknesses and Depreciation Explanation

Part a): The scenario reveals a lack of segregation of duties in the cash receipts and recording process. James’ roles include handling customer payments, making deposits, recording sales allowances, and sending remittance advices to the accounting department, creating opportunities for misappropriation or fraudulent activity. The absence of independent reconciliation or oversight is a significant internal control weakness.

To address this, the company should implement segregation of duties, ensuring different personnel handle cash receipt, deposit, recording, and approval of sales allowances. Regular reconciliation of bank statements and periodic audits further enhance internal controls. Instituting proper authorization protocols and limiting access to cash handling and record-keeping reduces risk and promotes accountability.

Part b): Depreciation is an accounting method that allocates the cost of a tangible asset over its useful life, reflecting the asset’s consumption or wear over time. It does not generate cash but provides a systematic approach to expense allocation, aligning the cost with revenue generation. Different depreciation methods—such as straight-line, declining balance, and units of production—affect financial results differently.

For the machine costing $45,000 with a salvage value of $3,000 and a useful life of 5 years, the straight-line depreciation allocates an equal amount annually ($8,400), while the declining balance method accelerates depreciation in early years. The units of production method ties depreciation expense to actual usage, producing variable expense amounts based on units produced (see detailed calculations below). These methods impact reported profit margins and asset values, affecting financial ratios and decision-making.

Question 4: Equity Transactions and Financial Position

Part a): Using the provided transactions for Alpha Ltd, journal entries are recorded for share capital changes, reserves, dividends, share splits, and transfers to reserves. The calculations involve adjusting share capital for the share split, recording dividends, and reallocating reserves appropriately. Changes in retained earnings are traced from net profit to dividends and transfers.

The statement of changes in retained earnings reflects net income, dividends paid, and transfers. The equity section of the balance sheet consolidates share capital, reserves, retained earnings, and other comprehensive income components. Additionally, the dividend payout ratio and return on shareholders’ equity are computed to evaluate profitability and dividend policy.

Part b): For Investors Ltd, the analysis compares two options for funding the expansion: debt versus equity. Calculations determine the return on equity under each scenario, considering projected profits, interest expenses, or share dilution. The analysis also discusses factors like financial leverage, risk, control, and future growth potential, helping inform strategic financing decisions.

Question 5: Cost-Volume-Profit (CVP) Analysis and Break-Even Point

The CVP analysis examines the sales volume needed to cover fixed and variable costs, determining the break-even point for 2007 and under different strategies. The base scenario indicates a loss at 60,000 units; hence, calculating the contribution margin ratio and break-even units reveals the sales level required to achieve profitability.

Alternative strategies involve increasing the selling price, altering sales compensation structures, or changing the cost structure through new equipment. Each scenario’s impact on the break-even point is assessed by recalculating contribution margins and fixed costs, enabling management to make informed operational decisions.

Conclusion

In summary, this comprehensive analysis demonstrates the importance of accurate accounting procedures, internal controls, financial ratio analysis, depreciation understanding, and strategic financial decision-making. Proper application of these principles supports effective management, enhances transparency, and guides sustainable business growth.

References

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