UNSW Business School

School of Accounting
ACCT1501 Accounting and Financial Management 1A
Session 1 2017

TUTORIAL WEEK 3 Solutions to Tutorial Questions

Tutorial Questions:
DQ 2.6, 2.20, P1.2, P2.8, P2.10, P2.13

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.

P1.2
1
Palm Tree Limited
Balance sheet
as at 30 June 2016
$
Assets
Cash at bank 50,000
Accounts receivable 40,000
Inventory 140,000
Buildings 200,000
Total assets 430,000

Liabilities and shareholders equity

Liabilities
Bank loan 40,000
Wages payable 60,000
Accounts payable 80,000
Total liabilities 180,000

1
 Shareholders equity
Share capital 160,000
Retained profits 90,000
Total shareholders equity 250,000
Total liabilities and shareholders equity 430,000

2 Profit for year ended 30 June 2016 = Retained profits at end of year Retained profits at start of
year
= 90,000 60,000
= $30,000

P2.8
Finewines Limited
Balance sheet as at 30 June 2016
Assets $ Liabilities $
Cash 4,340 Accounts payable 10,680

Inventory of grapes 9,800 Shareholders equity

Accounts receivable 10,460 Share capital 40,000
Kitchen equipment 50,800 Retained profits 24,720
Total shareholders 64,720
equity

Total liabilities and

Total assets 75,400 shareholders equity 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

2
 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 59,720
Net profit for 2016 2,430

Retained profits, 31 December 2016 62,150

3
Century Cinemas
Balance Sheet as at 31 December 2016
Current assets $ Current liabilities $
Cash 4,610 Accounts payable 13,910
Accounts receivable 13,450
Inventory 18,000 Noncurrent liabilities
36,060 Loan payable 35,000
Noncurrent assets Total liabilities 48,910
Furniture and fittings 34,000 Shareholders equity
Land and buildings 60,000 Share capital 60,000
Projection equipment 41,000 Retained profits 62,150
135,000 122,150

Total assets 171,060 Total liabilities and shareholders 171,060

equity

P2.13
Assets Liabilities Shareholders equity Notes
1 Increase NE Increase
2 Increase Increase NE
3 NE NE NE Assets increased and decreased
4 Increase Increase NE
5 NE NE NE Assets increased and decreased
6 Decrease Decrease NE
7 NE NE NE Assets increased and decreased
8 Increase Increase NE
9 Increase NE Increase