Step 3 .com



ACCT11081 Assessment Step 3-6Author: Jennifer Laing (s0019641)Step 3This is a link to my blog post, where step 3 was posted for discussion with my peers: . I have also copied the information into the paragraphs below.Funtastic Limited. This is the name of the publicly listed company I have been assigned to dissect this semester for this accounting unit. Here is a link to my company’s 2019 financial statements, which are only 89 pages long, and written in English. (I’ll never forget the bewilderment of a classmate last semester who was stuck with a 200 page long set of financial statements written in Chinese!)What does my company do? Funtastic manufactures and distributes toys. “Since 1996, Funtastic has been recognised as a pioneering manufacturer and distributor – developing and sourcing the brightest and best products from around the world.” (Funtastic, 2018, “Our story“) You may recognise some of their brands: Razor Scooters, Chill Factor slushy makers, Pillow Pets, and Toy Story.The financial reports brochure is covered in pictures of their products and looks like a marketing tool. In line with their fun image, the report looks appealing to read. I want to keep turning the pages just to see what other toys are going to appear.They do recognise that they have had profitability problems in the past and they’re working their way through it. They have chosen to diversify into complementary markets, STEM ranges, nursery toys, and wearable tech for kids in order to combat falling sales.I am, however, confused as to who the current CEO is? It looks like Steven Leighton resigned 31 March 2019, but I can’t see a replacement. I did find this interesting blog by ShareCafe that sheds some light on this, and then contrastingly further confuses the issue. Steven Leighton may have been replaced by David Jackson, who has since also been forced to resign. (I have since found confirmation of David Jackson being appointed CEO in the financial statements. He also negotiated a 6 months severance pay clause in his employment contract.)Funtastic has an Instagram Page, and a YouTube channel, which provides educational entertainment to young children.Funtastic state that they endeavour to pick the person who is the best fit for the job regardless of gender or race. Funtastic continue on to confirm that they specifically have not set diversity targets, with concerns that such targets may prevent them from working most efficiently. I feel this is a fair statement to make. My concern about diversity targets is that people who were a good fit for the job might be passed over because they didn’t meet the diversity creed (good enough for the job, but didn’t get it because they’re not the gender or race required to meet diversity goals).I find it interesting that Funtastic have mandated that the maximum age allowable for a director is 72. Do they expect them to lose their faculties when they reach 73? They also seem to put a lot of emphasis on their directors being very well qualified and having many skills. I’m not sure if this is a particularly good or bad thing. It certainly makes them look picky.I wonder how they got the bank to forgive their loans. It was $15.7m in total! They also mentioned a push to raise capital, and I can see this in the numbers of shares issued. They have roughly doubled the number of issued shares in the last twelve months.I am wondering how one can be a non-executive director (so not involved in the daily affairs of the company like management is), and yet be a full time employee. Perhaps I am misunderstanding.I have noted that Funtastic Ltd has signed a deed of cross guarantee. At first I thought all directors were taking on personal liability for company debt, but further research reveals that the deed means that all companies in the Funtastic Ltd group are cross guaranteeing each other’s debts. Am I happy to have been allocated this company? Yes. This company looks fun.Do I have any concerns at this stage? I’m getting the distinct impression that all is not as it seems at Funtastic.How does Funtastic Ltd compare to Tesserent Ltd? Well, Tesserent was in a pretty bad place when they last released financial statements in 2019. It will be interesting to see if they survive the economic downturn. Tesserent and Funtastic both introduced new management teams in 2019. However, while Tesserent found themselves saddled with enormous piles of debt, Funtastic state that they are now largely debt free at the end of FY2019 after carrying debt for many years. Tesserent had a standard financial year ending 30 June, but Funtastic have chosen to be unique and use 31 July for their year end date, even though both companies are based in Australia. That is going to take some getting used to.Tesserent (from memory) had a $4m loss at the end of 2019. By stark contrast, Funtastic has a net profit of $6.6m. Tesserent also had no OCI or COGS, but Funtastic does.Is it easier to read the financial statements now that I have done ACCT11059? I haven’t noticed a difference.Step 4Hold the bus! Wait! You want me to do what?!? You want me to download my bank account for my assignment. No way! My husband is not going to like this.This was my initial reaction to reading the first two paragraphs of the instructions for step 4. It literally took me a good 30 minutes to unpack this request mentally and become okay with this request. I can do this, download the information, declassify it, make it anonymous and classify only the income and expense transactions. Key Concept: Sometimes your initial reaction is an overreaction.Making my information anonymous and generic was also a simple enough process, although a smidge tedious, removing locations and reference numbers. For some reason, I am concerned with Centrelink getting a hold of this information and using it against me. I promise, I do not have a guilty conscience! Key Concept: Protect Your (Financial) Identity.I chose the month of June 2020 to classify. Luckily for me, I already do extensive budgeting spreadsheets, so there should be no guessing required as to what these expenses were, and no matter the outcome, I know we live within our means because we don’t do transactions on credit (I am a Dave Ramsey disciple after all), and savings are growing – although those transfers were removed (1) because they weren’t necessary for this step, and (2) to protect my family’s personal information. Key Concept: Live Within Your Means! It is a miracle! Well, it is not really, because as I have already stated, we live within our means, so it should be expected. We have a profit for the month of June of $1,808.83, despite several large bills that cover several periods coming due all at once.The only question I have at this stage is, do I need to have account numbers on my chart of accounts? After all, QuickBooks does not use account numbers.Will this be something I continue and expand on in the future? Yes. I have a much more extensive spreadsheet that I use for my family’s fortnightly budget, which keeps track of all our financial assets. Required questions to be answeredWhat is the chart of accounts so far, as illustrated in this example? What is your own chart of accounts? Is it like the one shown here? Remember, you can add to your chart of accounts as you classify more of your own transactions. Example chart of accountsIncomeInterest incomeIncome – salary and wagesExpensesPrivate health insuranceIncome protection insurance expenseTelephone expense (mobile)Vehicle expense (registration)Expenses – donations/giftsGeneral living expenses (food, fuel)My chart of accounts1 - Income1-1 Centrelink Benefits1-2 Wages2 -Expenses2-01 Chicken Food2-02 Church Tithing2-03 Clothing2-04 Extra Superannuation Payments2-05 Groceries2-06 Home & Contents Insurance2-07 House Maintenance2-08 Internet2-09 Medical Expenses2-10 Mobile Phones2-11 Motor Vehicle Fuel2-12 Motor Vehicle Insurance2-13 Motor Vehicle Maintenance2-14 Motor Vehicle Registration2-15 Private Health Insurance2-16 Takeaway2-17 Textbooks2-18 Union DuesMy chart of accounts looks similar, but there are differences. At this stage, I have chosen not to use account numbers, unless I am advised that it is necessary (I was advised that this is necessary). My expenses have been split into more precise categories than the example.What level of detail could you change in the chart of accounts shown in this activity? Why might you want to do this?I would want to split up the general expenses further to assist with future budgeting.How might you analyse your Income Statement? Has this exercise of recording your transactions through to the financial statements been useful for you? If so, why; if not, why not?I would analyse my income statement as a pat on the back with a job well done. It is predominantly my responsibility to set the budget and keep to it, and I am obviously succeeding. It has been interesting to see how much we are spending on groceries and fuel in a month, rather than in fortnightly increments. I would not say it has been especially useful to me since I’m already budgeting and reconciling the bank balance to the budget at the end of every fortnight.Did you identify any transactions that you could apply the accrual basis of accounting to? Describe how treating a transaction under the accrual basis of accounting might differ from the cash basis of accounting. (Hint: these sorts of transactions commonly appear in personal accounts as lump sum payments in advance for a year’s worth of ‘expense’ – e.g. house insurance, car registration).Motor vehicle registration and motor vehicle insurance qualify for accrued accounting treatment because they prepay twelve months of insurance cover and vehicle registration. I was going to say union dues, but that payment is for coverage in the three months prior. House insurance and private health insurance are both monthly expenses for our family.If I was going to enter motor vehicle registration and insurance into the income statement like I was using the accrual method of accounting, I would only enter one month of the full fee in June, or alternatively I could enter 28 days of motor vehicle insurance and 6 days of registration if I wanted to complicate the process and be precise. The remaining amounts are entered into the accrued expenses account which is an asset account on the balance sheet.Step 5Create a trial balance using your company’s financial statements for 2019. Sounds like a piece of cake, and I do not anticipate any issues with this exercise. Maybe I am a little too confident…I imagine someone who didn’t already have the extended accounting equation or how debits and credits work cemented in their head may learn from this task a greater understanding of why the accounting equation is assets + expenses, rather than assets + income. I have enjoyed learning why equity + liabilities = assets from a fundamental aspect, in that creditors and equity holders have a claim on assets, not just because that’s how it’s done in double entry accounting and debits must always equal credits. I think I thought it was one of those maths rules that must always be obeyed, like 1+1=2. I just made an overconfidence error by starting my trial balance before reading the instructions several times through. I ignored the bit about using the template (because I don’t need the template when I already know how to do a trial balance), but I did at least take note of the fact that we are to start with assets. I see the template does a lot of the work for you, making it impossible to make an error unless one forgot the fundamental accounting equation. Okay, let’s try again.I wonder what the difference between accumulated losses and reserves are (reserves for this company are for foreign currency translation, equity settled employee benefits, and cash flow hedging). I also wonder where the net profit/loss for the year has been allocated in this balance sheet, because otherwise my trial balance is not going to balance. Okay, I have just finished entering my balance sheet into my trial balance, so I’m going to check that my trial balance is balanced at this point (which it should be, or my balance sheet isn’t balanced either). I ‘SUM’ the two columns and breathe a sigh of relief because it balances.Moving onto the income statement, I am confronted with a COGS account flanked by two revenue accounts. Do I put the COGS in the expenses section, or the revenue section? Time to check out Maria’s step 5 video before I start pestering the Facebook group. Okay, so the COGS needs to be included in the expenses. Why don’t these companies order their expenses in alphabetical order? I know it is not a requirement, but it looks an awful lot better than having them in any old order, in my opinion. Not only that, but this company has income mixed up in their expenses. I know they’d be having a lot of fun at Funtastic, but a disorganised business probably isn’t going to succeed, and this gives an air of disorganisation, or lack of care.Okay, so I’ve finished my trial balance which is out by the exact amount of profit for the year, so now I need to investigate (1) which balance sheet equity account that has been put into, and (2) how Maria tells us to deal with it. Note 19 covers all the equity accounts, but only shows the changes in issued shares, which leads me to believe that the profit for this year is contained in the accumulated losses account, which I believe is also another name for retained earnings. (I wonder if it is accumulated losses if it is a debit balance and retained earnings if it’s a credit balance.) Time to see what Maria says. No way! The statement of changes in equity tells you where the profit has been closed off too! That is so cool and so useful. So, $7596 credit went to accumulated losses and $980 debit went to reserves, particularly foreign currency translation reserve. I “un-close” the transactions in the equity accounts like Maria instructs, and voila. My trial balance is balanced again! ................
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