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ACC106 Business Scenario And Instructions

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Question:

Magic Mufflers is a proprietorship of Mr Innis Hornet who established this new business on 1st June 2017. Magic Mufflers is a GST-registered muffler and exhaust business that specialises in a small range of high-performance mufflers and exhaust systems. The business sources its products from a number of suppliers and trade expos, and sells to car enthusiasts.

The business currently sells three types of mufflers: Sports SP, Retro RR, and Racer CC:

Innis Hornet, sole proprietor, has established a reputable and growing business with and has employed four staff members. Being an astute businessperson, Innis is using Microsoft EXCEL software to maintain the accounting records of the business transactions during the month of June 2017, which is the last month of the Australian financial year.

1.2    Accounting Policies

1.2.1 Magic Mufflers uses accrual accounting for recording transactions and adjustments.

1.2.2 Magic Mufflers uses a perpetual inventory system with weighted average.

1.2.3 Magic Mufflers prepares quarterly Business Activity Statements (BAS) and remits the net GST liability due to the ATO in the month following the end of each quarter. (Note: as this is a new business, Innis has not yet prepared a BAS and has no liability at the start of June.)

1.2.4 Magic Mufflers has the following depreciation policies:

  • Equipment and Tools: depreciated over 10 years using reducing balance method at rate of 28% ($1000 residual value and can be pooled together)
  • Technology and security systems: depreciated over 5 years using straight line method (can pool together; no residual value)
  • Motor vehicles: depreciated using reducing balance method at the rate of 35% over 8 years ($1000 residual value)

1.2.5 Magic Mufflers pays employee wages on a weekly basis. Wages are paid on the Wednesday for the previous week. The workshop manager and sales manager are full time, earn a weekly wage and work Monday to Friday. The payroll officer and trainee technician are employed on a casual basis and are paid hourly. All employees are paid employer superannuation contribution to their nominated superannuation funds at the rate of 9.5% of gross salary (before deductions). All employees are being paid into the same superannuation fund through an online portal (this means you can account for all superannuation together). 

1.2.6 Magic Mufflers records a provision for doubtful debts that equates to 4% of Accounts Receivable balance at the end of the year. 

1.2.7 Magic Mufflers records all prepaid expenses as assets (prepayments), and then expenses the portion used as end of year adjustments.

Accounting System  

2.2 The business prepares the following Financial Statements:

                Balance Sheet                    – Assets, Liabilities, Owners’ Equity

                Income Statement           – Revenue, Expenses, Gross/Net profit or loss

                Statement of Changes in Equity – Capital, Drawings

2.3 Chart of Accounts
Magic Mufflers Chart of Accounts is shown below.2.4 Employee Payroll

The Schedule of Employees and their pay rates are shown below along with relevant deductions (eg private health and employer superannuation guarantee).

Staff ID

Staff Name

Position

Private Health

ESG

Weekly salary

Hourly rate

EMP001

F Spark

Workshop Manager

$22/wk

9.5%

$2,090

 

EMP002

L Hornet

Sales Manager

$17/wk

9.5%

$1,880

 

EMP003

B Heat

Payroll Officer

$0

9.5%

 

$28

EMP004

C McQueen

Trainee Technician

$0

9.5%

 

$22

Calendar of relevant months for calculating payroll: 

Assume all employees claim the Tax-free threshold and use the calculator included in the EXCEL Student Templates file (Payroll calculator sheet) to calculate the withholding tax.

This can also be found on the ATO 

Business Transactions for June 2017

Adjustments for end of financial year 2017

4.1 A physical stocktake of supplies revealed supplies on hand at 30 June totalling $1380.

4.2 Calculate and record the adjusting entry for rent for the end of the month given that June rent (2weeks) has been used up. 4.3 Calculate the amounts for depreciation expense for each of the three types of non-current Assets: equipment & tools; technology & security; vehicles (Estimate expense as though assets held for whole of month of June.) 

4.4 Calculate and record the adjusting entry for insurance for the end of the month given that the June portion has been used up. (Estimate by weeks.) 

4.5 Calculate and record the adjusting entry for wages payable for employee earnings not yet paid as at 30 June. Apportion weekly salary earners by day; B Heat & C McQueen both worked 5 hours each between Mon 26/6 and Fri 30/6. 

4.6 Calculate the Provision for Doubtful Debts based on 4% of accounts receivable at the end of the year and make the necessary adjusting entry.

Accounting Requirements and Instructions

                5.1 Spreadsheet software

                The file on the course Blackboard site (ACC106 Task 2 Student Templates) contains a series of worksheets that you should use to complete the requirements below. Make changes as required including formulas and links.

                5.2 Completing the Accounting Cycle

5.2.1 Record all the business transactions from section 3 above in the relevant special journals and post the Account totals to the relevant ledgers using EXCEL linking function. Use the accounts listed in the Chart of Accounts and enter names of the ledger accounts as required. In the ledgers, use formulas to create running totals. DO NOT POST ADJUSTMENTS yet.

5.2.2 Prepare an ‘Unadjusted’ Trial Balance as at 30 June 2017 by linking balances in the ledger accounts to the Trial Balance. It will be a ‘Live’ Trial Balance but at this point it is unadjusted as the Adjustments have not yet been posted. When completed, check the debit and credit columns are equal in the Trial Balance. Then copy and special paste (as values only) the Trial Balance into the Worksheet columns ‘Unadj Trial Balance’. These should not change now as they are raw figures. (Tip: Use Paste Special to paste in as values.)

5.2.3 Record the end of year Adjustments, listed above at section 4, in the Worksheet and complete the Worksheet by calculating balances in the Adjusted Trial Balance columns. Then complete the Income Statement and Balance Sheet columns in the Worksheet.

5.2.4 Record the Adjustments in the General Journal and post these adjustments to the General Ledger using new accounts as necessary. (This will change the figures in your Trial Balance which should now match the Adjusted Trial Balance figures in the Worksheet.)

5.2.5 Prepare the closing entries in the General Journal, and post these to the General Ledger. (As with adjustments, this will change your Trial Balance figures if you have linked correctly.  NOW, your Adjusted Trial Balance figures in the Worksheet will NOT match the Trial Balance figures for the Revenue and Expense accounts and totals.)

Remember: for closing, close revenue and expense accounts to the P&L Closing Account, then close P&L Closing Account to the Capital account and finally, close drawings to the Capital account.

5.2.6 Finally, prepare the Financial Statements for 30 June 2017 by copying or linking the appropriate figures into your Financial Statements. Refer to your textbook or course Learning Materials for guidance on the format of these Statements. For Balance Sheet, use the Classified Balance Sheet in report form as demonstrated on p.184 of the text; and Income Statement and Statement of Changes in Equity as demonstrated on p.240 of the text. (Note, for the Income Statement, there will be three revenue streams including discount received.)               

Additional Information

                6.1 Number formats

All amounts should be rounded/truncated to two decimal places. Amounts can be displayed without $ sign. (Use $ sign for Financial Statements only).

                6.2 Journals and Ledgers

Adjustment & closing entries should be posted from the General Journal to the respective General Ledger accounts at the end of the financial year (June 30)

                Total columns in the special journals should be posted to the respective General Ledger accounts at June 30.

                Note: In the special journals, all entries that do not belong in one of the account columns aslisted in the template, should be included in the “Other Accounts” columns. These should then be posted on an individual basis to the respective ledger accounts. (Hint: the journal templates contain all the account columns as required for this business. However, not all accounts have been included in the general ledger template – please add as required.)

Remember: When special journals are used, do NOT also use the General Journal for the same transaction. Also, the subledgers for inventory, AR and AP are not linked to the General ledger but the balances should be checked.

                6.3 Inventory

                Record Inventory purchases and sales in the Subsidiary Ledger Inventory AS THEY OCCUR. As well, record purchases and sales in the relevant journals (using figures in the Inventory record) and post the Inventory totals from these journals to the General Ledger Inventory account at June 30.

                6.4 Wages

                There are two payroll worksheets that can be used to calculate wages. The payroll calculator  from the ATO should be used to estimate weekly PAYG withholding tax for each employee. Use the table in the payroll template to relevant amounts for each employee each week.

                6.5 Depreciation

                There is a depreciation worksheet with a table that can be used to calculate depreciation for the non-current assets. (Tip: depreciation expense is based on the net cost of the asset.)

Cite This Work

To export a reference to this article please select a referencing stye below:

My Assignment Help. (2020). Business Scenario And Instructions. Retrieved from https://myassignmenthelp.com/free-samples/acc106-business-scenario-and-instructions/suppliers-and-trade.html.

My Assignment Help (2020) Business Scenario And Instructions [Online]. Available from: https://myassignmenthelp.com/free-samples/acc106-business-scenario-and-instructions/suppliers-and-trade.html
[Accessed 27 July 2021].

My Assignment Help. 'Business Scenario And Instructions' (My Assignment Help, 2020) <https://myassignmenthelp.com/free-samples/acc106-business-scenario-and-instructions/suppliers-and-trade.html> accessed 27 July 2021.

My Assignment Help. Business Scenario And Instructions [Internet]. My Assignment Help. 2020 [cited 27 July 2021]. Available from: https://myassignmenthelp.com/free-samples/acc106-business-scenario-and-instructions/suppliers-and-trade.html.


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