Financial And Managerial Accounting Solved Assignment Solution Sample

QUESTION

Question 1
Hercules Ho, a qualified fitness trainer started a firm, Happy Fit Management about 3 years ago. The firm offers fitness programmes for individuals and companies. Business was good. Recently, its accountant was seriously injured in an accident and you were approached to help draw up the adjusted Trial Balance.
Following is the 31 December 2018 unadjusted trial balance:
Account title Debit ($) Credit ($)
Share capital 125,000
Retained earnings, 31 Dec 2017 24,688
Training equipment at cost 125,000
Furniture and fittings at cost 50,000
Accumulated depreciation, 31 Dec 2017
– Training equipment 15,000
– Furniture and fittings 10,000
Prepaid insurance 9,000
Rental expense 162,500
Insurance expense 6,750
Membership fee received 302,113
General expenses 5,090
Bad debt expense
Wages and salaries 49,850
Equipment maintenance expense 13,580
Interest and bank charges 110
Allowance for doubtful debts 195
Accounts receivable 7,643
Accounts payable 3,125
Bank 50,208
479,926 479,926
You are given the following additional information all of which is considered material and (unless stated otherwise) none of which has been taken into consideration in arriving at the figures shown in the unadjusted trial balance above.

(i) On 1 October, Hercules Ho sold a treadmill that costs $5,000, with accumulated depreciation of $2,000 as at 31 Dec 2017 for cash of $3,000. Hercules Ho deposited the cash into his personal bank account. Hercules Ho forgot to inform his accountant of this transaction. According to him, the cash taken by him was to be treated as a loan to him.
Both the cost of the treadmill and the accumulated depreciation were included in the amount shown for training equipment at cost and the accumulated depreciation for training equipment in the unadjusted trial balance above. The residual value of the treadmill was originally estimated to be $500.

(ii) As at 31 Dec 2018, the salaries payable to employees were $$2,488.
(iii) No depreciation has been charged for the year ended 31 Dec 2018. During the year, no additional non-current assets was purchased. The company depreciates non-current assets held at 31 Dec 2018 as follows:
 Training equipment at cost – straight line over five years. The residual value of the training equipment at cost was estimated to be $15,000.
 Furniture and fittings – assuming a four-year life and double-decliningbalance depreciation.
(iv) On 31 December, the amount of membership fee paid in advance by private members and corporate members were $$5,125. However, these have been included in membership fee received in the unadjusted Trial Balance.
(v) It was estimated that 5% of outstanding accounts receivable on 31 December were uncollectible.
(vi) The bank statement received from its banker, the Solid Rock Bank Corporation, revealed that the bank service charge for December of $100 were also not recorded by the company.

Required:
(a) Analyse the above and prepare all necessary adjusting entries to describe them. Show
narrations and all workings.
(19 marks)
(b) Prepare an adjusted trial balance as at 31 December, 2018.
(15 marks)
(c) Identify the following from the adjusted trial balance:
(i) The net profit for the year ending 31 December, 2018.
(ii) The total assets as at 31 December, 2018.
(iii) The total liabilities as at 31 December, 2018.
(iv) The total equity as at 31 December, 2018.
You do not need to produce your answers in the format of the income statement or the statement of financial position. However, you need to show all workings

 

ANSWER

 

FJ BENJAMIN : CALCULATION OF VARIOUS RATIOS

A) PROFITABILITY RATIO
		2018	2017
RETURN ON EQUITY	PROFIT AFTER TAX / NET WORTH	-2.34	-40.90
EARNING PER SHARE	PROFIT AFTER TAX / TOTAL NOS OF SHARES O/S	-0.18	-2.92
RETURN ON CAPITAL EMPLOYED	NET OPERATING PROFIT / CAPITAL EMPLOYED	5.71	-26.26
RETURN ON ASSET	PROFIT AFTER TAX / TOTAL ASSET	-1.12	-1.46
GROSS PROFIT	GROSS PROFIT / SALES	1.84	-5.49
NET PROFIT	NET PROFIT / SALES	-0.74	-8.39
B) LIQUIDITY RATIO
		2018	2017
CURRENT RATIO	CURRENT ASSET / CURRENT LIABILITIES	1.37	1.10
QUICK RATIO	QUICK ASSET / CURRENT LIABILITIES	0.79	0.55
C) EFFICIENCY RATIO
		2018	2017
EFFICIENCY RATIO	EXPENSES / SALES	0.540	0.580
D) SOLVENCY RATIO
		2018	2017
DEBT TO EQUITY RATIO	DEBT / EQUITY SHARES	0.41	0.41
DEBT RATIO	DEBT / CAPITAL EMPLOYED	1.37	1.70
PROPRIETORY RATIO	SHAREHOLDERS FUND / CAPITAL EMPLOYED	3.29	4.07
INTEREST COVERAGE RATIO	PROFIT BEFORE INTEREST / INTEREST ON DEBT	2.21	-6.53

2. ANALYSE ON THE BUSINESS PERFORMANCE AND FINANCIAL POSITION:

FJ Benjamin Holdings Ltd is a limited liability company incorporated and domiciled in Singapore.

In case of return on equity the higher the ratio the better the company is. In the above case there is a huge improvement in this ratio which shows that’s equity fund are more properly utilize as compare to previous year. In 2018 the earning per share has been improved as compare to 2017 but still it is in the negative side, this ratio basically measure the profitability from the point of view of the ordinary shareholder. Return on capital employed also signifies that a high ratio is better for the company, this ratio shows the percentage return in the company on the funds invested in the business by its owner. In 2018 this return is in the positive side in comparison to last year i.e. 2017. In 2018 the gross profit is in the positive side i.e 3065 in comparison with 2017 which is in the negative side i.e (11394). The positive gross profit shows that the company had done really well in 2018, if we compare the turnover of the two years there is a decrease in sales in 2018 by 41505 but still the company improves the gross profit. Gross profit ratio measures the marginal profit of the company, this ratio is also used to measures the segment revenue. In 2018 the net profit is in the negative side i.e (1235) and in 2017 also it is in the negative side i.e (17420). It is negative in both the years but it had improved by 16185 which shows that the company had done really well in 2018 and if we compare the turnover of the two years there is a decrease in sales in 2018 by 41505 but still the company improves its net profit by 16185. Net profit ratio measures the over-all profit of the company considering all direct and indirect cost.

Current ratio generally measure the financial strength of the company, 2:1 is treated as the ideal ratio but at the same time it differs to industry to industry. If we look here the current ratio there is a slight improvement in 2018 with compare to 2017, in 2018 it is 1.37 and in 2017 it is 1.10 so there is an improvement of 0.27 which shows that the company had done well and strength its financial position. Also the quick ratio has improved by 0.24 in 2018 which signifies that the company had improve its liquidity position.

The percentage of cost of goods sold with the revenue had also been improved in 2018. Earlier it was 0.580 while in the current year it is 0.540 which shows an improvement of 0.040.

The debt to equity is almost same in both the year, this ratio basically signifies that the relationship between long-term debt of a company and its total equity.