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Business School

ACCT1501 Accounting and Financial Management 1A


Session 1 2016

TUTORIAL WEEK 3 Solutions to Tutorial Questions


Tutorial Questions:
DQ 2.6, 2.20, P2.8, P2.10, P2.13, P2.18

DQ2.6
a
A balance sheet can indicate whether a company is financially sound by a comparison of
the amount of finance raised by debt with the amount raised from owners. The higher the
proportion raised by the debt, the higher the risk to the creditors.
b
The working capital, i.e. current assets less current liabilities indicates a companys
ability to pay its bills on time. This assumes that the current assets can be readily turned into cash.
c
To declare a dividend a company must have adequate cash (or overdraft facilities) and
adequate retained profits. The decision will be influenced by shareholder expectations.
d
The age of equipment can be ascertained by comparing cost of equipment to accumulated
depreciation.

DQ2.20
Those that are current need to be repaid within one year or refinanced. This is where the
immediate pressure is.

P2.8

Assets
Cash
Inventory of grapes
Accounts receivable
Kitchen equipment

Total assets

Finewines Limited
Balance sheet as at 30 June 2016
$
Liabilities
4,340
Accounts payable
9,800
10,460
50,800

75,400

Shareholders equity
Share capital
Retained profits
Total shareholders
equity
Total liabilities and
shareholders equity

$
10,680
40,000
24,720
64,720

75,400

Net profit for the year (which is not distributed as dividends) is technically called retained
profits on the balance sheet, and is a type of shareholders equity.
Accounts payable is a liability, not an asset.
Accounts receivable is an asset, not a liability.
Kitchen equipment is an asset, not shareholders equity nor a liability.
Liabilities and share capital should be separately categorised.

Individual totals for each of: assets, liabilities and owners equity should be calculated and
displayed (unless there is only one or no items in a category, in which case the total is
obvious).
Totals for each side of the balance sheet should be calculated (to check it balances).
Dollar signs should be displayed to indicate that the numbers represent dollars.

P2.10
1
Century Cinemas
Income Statement
For the year ended 31 December 2016
$
$
Ticket revenue
81,700
Confectionery sales
12,300
Less Cost of confectionery sold
(10,500)
Gross profit
83,500
Less operating expenses
Advertising expense
42,780
Rent expense
33,200
Electricity expense
5,090
(81,070)
Net profit
2,430
2
Century Cinemas
Statement of retained profits
For the year ended 31 December 2016
Retained profits, 1 January 2016
Net profit for 2016

$
59,720
2,430

Retained profits, 31 December 2016

62,150

Current assets
Cash
Accounts receivable
Inventory
Noncurrent assets
Furniture and fittings
Land and buildings
Projection equipment
Total assets

Century Cinemas
Balance Sheet as at 31 December 2016
$
Current liabilities
4,610
Accounts payable
13,450
18,000
Noncurrent liabilities
36,060
Loan payable
Total liabilities
34,000
Shareholders equity
60,000
Share capital
41,000
Retained profits
135,000
171,060

Total liabilities and shareholders


equity

$
13,910
35,000
48,910
60,000
62,150
122,150
171,060

P2.13
Assets
Increase
Increase
NE
Increase
NE
Decrease
NE
Increase
Increase

1
2
3
4
5
6
7
8
9

Liabilities
NE
Increase
NE
Increase
NE
Decrease
NE
Increase
NE

Shareholders equity
Increase
NE
NE
NE
NE
NE
NE
NE
Increase

Notes

Assets increased and decreased


Assets increased and decreased
Assets increased and decreased

P2.18
Revenue for the month of February 2016
1
2
3
4
5

Sales credit
Sales cash
Rental revenue

Total revenue

$
100,000
150,000
5,000

255,000

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