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Assignment Task:

Task:



Case Study (all information is fictional)
Eric Wang migrated to New Zealand from China in 2019. He decided to move to Auckland because he wanted to raise his children in a multicultural city which offers clean environment, good education and business opportunities.
Eric ran a restaurant in China and his experience landed him a job as the ICL Café manager.
Required:
[i] As Eric is new to New Zealand he asked you to show how GST is calculated for canned peaches that he sells at the Café. Use the following table to calculate GST paid by orchardist, cannery, wholesaler, Café and consumer. [1 mark]
  Purchase       Paid to IRD
  Price paid GST Total (GST incl) Price charged GST Total (GST incl)  
Orchardist       2      
Cannery 2     3      
Wholesaler 3     4      
Café 4     6      
Consumer 6            
[ii] Assume that Eric’s business generated sales of $67,000 in 2019. Does he need to register for GST? Justify your answer. [1 mark]
E.
LO 2a
Budgeted Income Statement
The following fictional data shows the ICL Café income statement for the month of August 2019:
  Actual August 2019
  $ $
Sales   52,000
Opening inventory 10,000  
Purchases 7,000  
Closing inventory 8,000  
COGS 9,000  
Gross profit   43,000
Wages 11,000  
Interest on loan 6,000  
Rates 1,800  
Internet&Phone600  
Other expenses 2,800 22,200
Net Income   20,800
ICL Café manager has made the following assumptions for September 2019:
He assumes there will be more customers in September. The manager is expecting the sales to increase by 9%.
Due to this increase in sales the Cafe needs to increase the purchases. Purchases are based at 17% of the sales and then closing inventory is estimated to be at 6% of the sales.
Due to the increase in retail sales the following expenses will be changed too.

  • Salaries will increase by 3%
  • Internet and telephone expenses will increase by 4%
  • Delivery vans running cost will increase by 2% of sales. Delivery van expense is recorded in other expenses.
  • All other items will remain same.
  • Required:
  • ICL management asked your help to prepare a budgeted income statement for the month of September 2019. [3 marks]
  • F.
  • LO 2b
  • Statement of Cash Flows
  • Note: the following data is fictional
  • ICL Cafe manager presented the following information on cash flows for the year ending 31 December 2020.
  • The Café had $40,000 in its bank account as at 31 Dec 2020.At the beginning of the year, there was a $23 000 overdraft balance. Receipts and Payments for the year ended 31 Dec 2020 were as follows:
  • Receipts:
  • Cash sales$390000
  • Debtor payments$ 430,000
  • Interest earned$ 6,000Mortgage received$ 170,000Sales of land$ 190 000
  • Payments:
  • Cash purchases$ 52,000
  • Creditor payments$ 362,000
  • Dividends$ 32,000
  • Interest paid$ 16 000Building purchase$ 320,000
  • Tax$ 40,000
  • Van purchase$ 37,000
  • Wages and salaries$ 200,000
  • Required:
  • ICL management asked for your help to prepare a Cash Flow Statement for the year 2020.
  • [3 marks]
  • G.
  • LO 2a
  • Case study Internal Control (all information is fictional)
  • Eric worked hard so ICL Cafe generated a healthy cash flow.
  • Since the volume of operations has increased significantly, Eric was not able to control everything by himself. Recently he has been concerned about some issues in his operations.
  • Eric provided some information on his operational activities as follows:
  • Every day there are three waiters working at the Café. The waiters take orders and take money from the customers when they pay their bills. At the end of the day the chef files customers’ meal order dockets in a folder. The senior waiter balances the cash register. He counts the cash in the till and compares it with the cash register tape which shows the amount of receipts by cash, EFTPOS and credit cards. Then he prepares a report and a bank deposit (cash to be taken to the bank next morning) for Eric.
  • Eric puts the deposit envelope in a drawer in his office. In the morning the senior waiter takes cash to the bank to deposit it into the business account.
  • Required:
  • Discuss two practical internal control measures over cash that will overcome weaknesses in cash control in Eric’s business. [2 marks]
  • H.
  • LO 2d
  • The following summary data are from a performance report for ICL Cafe for Jan - Dec 2019 (all information is fictional). During this period 14,000 cakes were produced. The budget reflects the Cafe’s normal capacity of 11,000 cakes.
  • 19519   Budget Actual Variance
  • Units 11,000 14,000  
  • Raw materials $ 34,000 38,000 -4,000
  • Direct labour $ 73,000 75,000 -2,000
  • Factory Variable OH $ 25,000 26,800 -1,800
  • Factory Fixed OH $ 18,000 19,000 -1,000
  •   150,000 158,800 -8,800
  • Required:
  • [i] What is the general implication of the performance report? [1 mark]
  • [ii] Identify an issue in the report [1 mark]
  • [iii] Solve the issue by revising the performance report using flexible budgeting. [3 marks]
  • [iv] Comment on the general implication of the revised report. [1 mark]
  • I
  • LO 2aYou have just been appointed as assistant accountant at ABC Ltd and have been given the task of analysing the company’s financial performance during 2018 and its financial position for the year. So that you can do this, you have obtained the following financial statements of the company for 2018, and the industry average ratios for 2018:
  • Income Statement for the year ending 31 December 2018Sales   2,537,500
  • Cost of sales   1,840,800
  • Gross Profit   696,700
  • Operating expenses    
  • Selling 325,000  
  • Admin 183,000  
  • Depreciation 76,000  
  • Operating profit   112,700
  • Interest 58,300  
  • Profit before tax   54,400
  • Tax   8,820
  • Net profit after tax   45,580
  • Balance Sheet as at 31 December 2018
  • Current assets    
  • Cash   12,500
  • Accounts receivable   405,320
  • Inventory   372,870
  • Total current assets   790,690
  • Property, Plant, Equipment 1,046,910  
  • Accumulated depreciation 250,000 796,910
  • Total assets   1,587,600
  • Current liabilities    
  • Accounts payable   110,000
  • Notes payable   155,500
  • Accruals   67,600
  • Total current liabilities   333,100
  • Non current liabilities    
  • Long term loan   582,625
  • Total liabilities   915,725
  • Equity    
  • Shares   171,875
  • Retained profit   500,000
  • Total shareholders funds   671,875
  • Historical ratios
  •   2016 2017 2018 Industry
  • Operating profit margin 6.2 5.3 4.0
  • Inventory turnover period 68 70 62
  • AR average collection period 54 57 51
  • Required:
  • Calculate and analyse operating profit margin, inventory turnover ratio and accounts receivable collection period for 2018 to evaluate profitability and efficiency of asset utilisation at ABC Ltd.
  • In your answer analyse the changes over three years [2016-2018] and compare the 2018 ratios against the industry averages and provide recommendations to improve each ratio. [4 marks]

 

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  • Posted on : June 26th, 2019

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