FNSACC414 - Prepare Financial Statements For Non-Reporting Entities Assignment

Assignment Task

Activity 1

1.1 Name two (2) types of non-reporting entities. For each type of non-reporting entity, describe their key characteristics.

1.2 What are the differences between non-reporting entities and reporting entities when it comes to financial reporting?

1.3 What is the purpose of preparing financial statements for non-reporting entities?

1.4 Businesses that are registered for GST must honour specific obligations.

a. List the criteria for a supply to be classed as a taxable supply.

b. List five examples of supplies that include GST.

1.5 Outline the key differences between special and general purpose financial statements.

1.6 Different financial reports can be used to present financial data. What is the purpose of the following financial reports?

1.7 Outline the two (2) types of deductions allowed under the Income Tax Assessment Act 1997 Division 8.

1.8 List three types of entities required to produce annual financial reports that comply with the Australian Accounting Standards under the Corporations Act 2001 (Cth).

1.9 Name each legislation described below.

Key features

Regulates the operation of business entities in Australia. Is administered by the Australian Securities and Investment Commission (ASIC)

Specifies the tax payable on sales and when a business must register to claim credits for goods and services tax included in goods purchased

The Act is a statute used to calculate income tax assessments and provides rules for deductions for business expenses

Activity 2 NeoZone Partnership

You are a bookkeeper at the accounting firm Complete Business Services. You have a new client, a partnership, called NeoZone for Kids.

2.1 Review the provided Partnership Agreement for NeoZone for Kids.

Use the information in the partnership agreement to prepare the journal entries to record the capital contributed by the partners.

General Journal of NeoZone for Kids

1. Capital introduced by James

2. Capital introduced by Leona

3. Capital introduced by Brady

Scenario Update

It is now early July and the partners have asked you to prepare the financial statements for the quarter ended 30 June 2022. These reports are required for taxation purposes.

NeoZone for Kids organisational policies and procedure require:

• quarterly reports to be prepared for the quarters ended 31 March, 30 June, 30 September and 31 December
• all financial statements must follow the File name Saving Protocol as per the NeoZone for Kids Data Creation, Collection and Protection Policy which is: NeoZone for Kids_Financial Statement Name or General Journal Name_ddmmyyyy
• the cash method of accounting is used
• all operating expenses to be paid monthly, except insurance.
• a periodic inventory system to be used
• all financial reports be prepared using the Financial Statements Template

The partners have provided you with the following additional resources to help you in preparing the relevant reports:

2.2 Use the NeoZone Calculations Template and NeoZone Bank Statement to calculate the amounts to be used in the financial reports for the quarter ended 30 June 2022.

2.3 Use the table below to prepare journal entries to transfer the income and expense accounts to Profit and Loss at 30 June 2022. You should refer to:

• the Accounts listed in the Chart of Accounts file
• the assumptions in the email for the accountant, in particular:
• All operating expenses are paid monthly except for insurance which was paid a year in advance on April 1. Nine months of this cost will be prepaid Insurance.
• A periodic inventory system is used. On June 30, a stocktake was performed and the inventory balance was determined to be $9,334.
• Depreciation to be charged is $250 on computer equipment, $20 on furniture and $90 on software.

2.4 Use the table below to prepare journal entries to transfer the net profit to Profit and Loss Appropriation and share the profit among the partners in accordance with the Partnership Agreement (Use Current accounts) at 30 June 2022.

2.5 Use the table below and the bank statement to prepare journal entries to close the partners’ Drawings accounts at 30 June 2022 to their Current accounts.

2.6 Using the NeoZone Financial Statements Template (document: FNSACC414_NeoZone Financial Statements Template), prepare the following financial statements:

• Income statement for the 3 months ended 30 June 2022
• Balance sheet as at 30 June 2022
• Cash flow statement for the 3 months ended 30 June 2022

When preparing the financial statements, you should ensure you follow the organisational policies and procedures outlined in question 2.2.

Also, consider the following assumptions in the email for the accountant:

• All operating expenses are paid monthly except for insurance which was paid one year in advanced on April 1. Please consider what proportion of this cost will be expensed in the current year.
• A periodic inventory system is used. On June 30, a stocktake was performed and the inventory balance was determined to be $9,334.
• Depreciation to be charged is $250 on computer equipment, $20 on furniture and $90 on software.
• The cost of electricity is included in the monthly rent.

According to the organisational policies and procedures of NeoZone, all financial statements must be verified and approved by all three partners.

2.7 Use the following template to prepare an email to the relevant people asking them to verify and approve the financial statements you prepared in question 2.6. Your email should set out the reports to be approved.

The partners have all replied to your email approving the financial report. They have also asked to complete additional analysis of the financial data.

The business would like to gain a better idea of which areas of they are performing well and what we can do to continue their growth.

They have asked you to prepare a report on the liquidity, profitability and activity levels in the business as well as your professional recommendations on some pathways to improve our long-term success.

2.8 Use the following template to prepare an email to the partners. Your email should be based on the financial reports you prepared above and include the following:

• Current ratio
• Quick ratio
• Gross profit ratio
• Net profit rate
• Inventory turnover (assume when calculating average inventory, the Opening Inventory = $0)
• Days inventory is held
• Make three suggested changes the partners could make that would help business growth. For each, describe how it will benefit the business in the longer term.
• Explain the advantages and disadvantages of the ratio analysis you have completed
• Comment on how the liquidity, profitability and activity of the business compares with the following industry averages:

 

Ratio name	Industry Averages
Current ratio	2:1
Quick ratio	1.38:1
Inventory turnover rate	5 times
Average days inventory is held	61 days
Gross profit rate	34%
Net profit rate	12%

 

2.9 You have asked the new accounting intern to complete the cash flow statement for the next quarter for NeoZone Kids. They have provided you with the following Statement of Cash Flows for the 2 months ended 31 August 2022:

Statement of Cash Flows

2 months ended 31 August 2022

	$	$
Cash flows from operating activities
Receipts from customers (inc. GST)	69,248.00
Payments for inventory (inc. GST)	-25,205.40
Payments for expenses	-8,001.50
Net cash from operating activities		36,041.10
Cash flows from investing activities
Payments for furniture	-1,800.00
Payments for software	-900.00
GST paid on purchases of non-current assets	-160.00
Net cash from investing activities		-2,860.00
Cash flows from financing activities
Capital invested by partners	41,000.00
Payments for drawings	-5,500.00
Net cash from financing activities		35,500.00
Change in cash balance	68,681.10
Add: Cash at the start of the period	29,231.20
Cash at the end of the period		97,912.30

 

a. Review the Statement of Cash Flows and NeoZone’s organisational policies and procedures provided in previous questions. What is one change that needs to be made to ensure that the above report is in compliance with the organisational policies?

b. Review the Statement of Cash Flows and UIG 1031 - Accounting for the Goods and Services Tax, particularly point 11. What is one change that needs to be made to the Statement of Cash Flows to ensure it is in compliance with the accounting standards?

You have spoken with the new accounting intern who completed the cash flow statement for the next quarter. They have confirmed that the cash flow statement did include all the transactions for the quarter ended 30 September 2022 (not just for the 2 months ended 31 August 2022).

c. Prepare an amended Statement of Cash Flows correcting for the two errors identified.

Activity 3 Sherville Not-for-Profit Case Study

You have just been assigned to another one of Complete Business Services' clients, Sherville Racquet Club. Sherville Racquet Club is a not-for-profit organisation.

The client has provided you with the following additional resources to help you in preparing the relevant reports:

• Email with Additional Info – see file: Sherville - Email with Additional Info.
• The prior year Statement of Assets and Liabilities – see file: Sherville - Statement of Assets and Liabilities
• Current year Receipts and Payments Summary – see file: Sherville - Receipts and Payments Summary

Sherville Racquet Club organisational policies and procedures require annual reports to be prepared for the year ended 30 June.

Resources required for this assessment:

From the LMS:

• Additional documents in Sherville Resources folder:
  • Sherville - Email with Additional Info
  • Sherville - Statement of Assets and Liabilities
  • Sherville - Receipts and Payments Summary

3.1 Using the Sherville Financial Statements Prepare the Statement of Receipts and Payments for the year ended 30 June 2022.

3.2 Using the Sherville Financial Statements Prepare Members Subscriptions account in running balance format for the year ended 30 June 2022.

3.3 Using the Sherville Financial Statements Prepare Restaurant and Bar Trading Statement of Receipts and Payments for the year ended 30 June 2022. 

3.4 Using the Sherville Financial Statements Prepare the Statement of Income and Expenditure for the year ended 30 June 2022.

3.5 Using the Sherville Financial Statements Prepare Statement of Assets and Liabilities for the year ended 30 June 2022.

3.6 You have completed the requested financial reports for Sherville Racquet Club. Before you send to the client, you want to confirm the internal reports you have prepared are consistent with external sources and financial data. For each of the following, determine how you could check the numbers in the financial report are correct. 

3.7 Sherville Racquet Club would like to expand their existing suite of organisational guidelines and procedures to ensure their financial statements are accurately prepared. The new policies include:

• Finance Authorisations Policy
• Bank Account Policy and Procedure
• Petty Cash Policy
• Purchasing Policy
• Stock Control Policy
• Customer Credit Limit Policy

Conduct your own research to identify the key features of the above policies. The Access Business Victoria’s Financial policies and procedures manual template may assist you. If this link is not available, conduct an internet search on financial policies and procedures.

Based on your research, match the relevant policies and procedures listed above with the correct key feature description in the table below. You should only include one policy/procedure for each feature.

Feature	Policy/procedure
Who can approve purchasing  of stock, payment for goods, authorise new customers, and suppliers
Sets out the requirements for use of bank accounts, including opening, closing authorisation, variations to terms and conditions, reconciliation of bank accounts and bank account transactions.
Provides guidelines for the purchase of goods, services, equipment and assets for the business.

Activity 4. Research Questions

Conduct your own research to answer the following questions.

4.1 Ratio analysis can be used to compare an organisation’s performance to an industry benchmark or competitors. Conduct your own research and outline an advantage and disadvantage of using each comparison techniques.

4.2 Conduct your own research and outline an advantage and disadvantage of each method of presenting financial data.

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