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Assessment 1Step 7-11KCQs, Reflections and reactions.Student name: Vithanage PereraStudent number: 12061738Unit name: Introductory Financial AccountingUnit code: ACCT11081Step 7I checked the annual reports of Hong Kong and China gas for the last three years to explore inventories. I could find it easily by using the search function. It was listed under the current assets of the balance sheet. The inventory of the company was comprised of two types of inventories called stores and raw materials and work in progress. In 2018 the company had HK$ 2480.7 million inventories which comprised of HK$1,844.7 million of stores and materials and HK$ 636 million of work in progress in their balance sheet. In 2017 the company had HK$ 2578.3 million worth of inventory which comprised HK$1753.6 million of stores and materials and HK$824.7 million of work in progress. The company has reported the value of inventory as HK$ 2,110.4 million which included HK$ 1403.3 million of stores and materials and HK$ 707.1 million of work in progress in 2016. The value of the inventories of the total current assets was 12% in 2018, 10.58% in 2017 and 9.97% in 2016. Inventory value has been increased by 2.3% from the year 2016 to 2018. When I was going through my financial statements, I though how do firms value inventory to record them in the financial statements? According to the Australian Accounting Standard Board (AASB) 102 requires firms to value inventories to be valued at the lower of cost and net realisable value. What is net realisable value? It is the calculated selling price less the calculated cost of sales. How firms account for inventory? Firms transfer the value of inventory from the balance sheet and allocate it to the cost of sales in the income statement. There are two methods of recording transactions into and out of inventories. What are they and what is the difference between the methods? They are perpetual inventory system and periodic inventory system. I learned that in the perpetual method, businesses keep current and continuous records of inventory transactions all the time. According to the periodic method it only calculates and accounts for inventory at the end of the year. I was keen to find out what method is used by my company to record inventory. I looked at my financial reports to find the answer. But I could not find it as they had not mentioned the method. Then I looked at my financial statements to check how the cost of goods are recorded as Maria advised at the lecture. There was only one line indicated under operating expenses called stores and materials used. So, I realised that my firm has used the perpetual method. According to the financial statements, the company has indicated HK$ 20,597.9 million, HK$ 15,691.9 million in 2017 and HK$ 12,709.6 million in 2016 as stores and materials used in the income statement. What are the methods that firms use for inventories? There are four methods, including Specific identification method, FIFO (First-in, first-out), FIFO (Last-in, last-out) and Weighted Average. It was interesting to know that FIFO method is restricted using in Australia. What is LIFO? In this method it is assumed that firms sell first, the last units of the items purchased. Why this method cannot be used in Australia? The main reason is the cost of Inventory is rising over the period of time. This could result in a lower value of Inventories and higher Cost of goods sold, a lower profit and lower tax payable. FIFO and Weighted average methods are the most used and popular methods that firms use. According to the financial statements, Hong Kong and China gas uses the weighted average basis, comprises materials, direct labour and an appropriate proportion of overheads to calculate their inventories. In the weighted average method, a firm sells a mixture of both recent and earlier purchased items of inventory. The Group has written down the carrying value of inventories by HK$5.7 million in 2018 to its net realisable value during the year. Similarly, the firm has written down the carrying value of inventories by HK$2.1 million in year 2017 and HK$2.5 million in 2016.I keep an inventory of groceries that I need as I engage in a small business of my own. I keep a stock of items of raw materials that need to make cupcakes for the birthday parties of the children of my friends. I do not keep any stock of finish goods as I only make cake when I get the order. I use FIFO method and use my old ingredients first before I take out my new ingredients. But I never keep any records of inventories. When I was in Sri Lanka, I worked in a firm as a trainee auditor in an audit firm. At the end of the year, we used to go to different firms and take stocks at different types of companies. It was very interesting and enjoyable experience for me. We used to get system printed sheets of the stocks of finished goods and raw materials from the company. Then monitored the people who were counting the stocks to make sure the number of physical items matches with the system generated stocks and mark off item categories if it was matching. I only have done finished goods as my senior auditors did the raw materials. I have experience of taking stocks of gloves, jewellery, bags and steel. It was interesting when I took stocks of jewellery at a jewellery shop. Few people from the shop engaged with us to take stocks. They kept their highly valuable pieces of jewellery in lockers. We used to open the lockers one by one and checked the weight of each item indicated in the list of stock and marked them off. There were few issues with the stocktaking at a couple of places due to the physical numbers did not match with the stock sheets. When the senior auditors asked questions to clarify the issues, they were told that the differences occurred due to the damages of stocks while transporting them. The evidence was presented by the management of the company and after the clarifications, the audit reports were signed and issued by the audit firm.Step 8Completion of set upI have entered one transaction for sales and one for purchases as I was so curious at the setting up stage. Completion of trainingReceive paymentsProcess purchasesPay billsElectronic paymentsSpend money-recurring paymentsReceive moneyPrepare bank depositsBank reconciliationCompletion of the quizStep 9TransactionsGas utility sale to St Vincent hospital at a cost of $10,000.Town gas orders 50 stainless steel at a price of $ 100 and 50 nuts and bolts at a price of $4 each from Brisbane steel suppliers. Goods will receive at a total price of $5250.Towngas has received a quote for 10 gas ovens from Mantra Sun City hotel. Sale of 10 ovens to this customer at a cost of $9200 per oven. Towngas will receive a payment of $46,000 from Mantra Sun City hotel to the business bank account directly.The company takes professional engineering consultancy service for $12,000 from Silverlake Distributers. The company makes a payment of $12,000 to Silverlake.Spend $400 for stationary and $150 for postage using a visa card.Payment for electricity expense of $3,000 using visa card.Salary payment of $7,500 to employees. Sale of 3 oven hoods at a price of $4200 to Mantra Sun City. An installation fee of $500 per hour for 3.5 hours must be allocated.$12000 of capital injection to the company from one of the owners of Towngas. Gas utility sale of $20,000 to sea world.DateDetailsDebitCredit23/12/2019Trade Debtors (Accounts receivable) Service income GST collected(Gas utility sale to St Vincent hospital)10,000.009,090.91909.091/1/2020PurchaseFreightGST paid Trade creditors (Accounts payable)(Purchase of steel from Brisbane Steel Suppliers)4,727.2745.46477.275,250.0023/12/2019Trade debtors Kitchen appliance income GST collected(Credit sale of 10 ovens to Mantra Sun City hotel)46,000.0041,818.184,181.8224/12/2019Purchase-serviceGST paid Trade creditors(Take professional engineering consultancy service from Silverlake Distributors.) 10,909.091090.9112,000.0024/12/2019Trade debtors Kitchen appliance income Service income GST collected(Sale of kitchen appliance and an installation service to Mantra Sun City.)14,350.0011,454.551,590,901,304.5524/12/2019Trade Debtors Service income GST collected(Gas utility sale to Sea world)20,000.0018,181.821818.1825/12/2019Trade Creditors Visa card(Payment to Silverlake using visa card)12,000.0012,000.0025/12/2019ElectricityGST paid Visa card(Payment for electricity bill)2,727.27272.733,000.0025/12/2019Salary & wages Towngas business account(Salary payment to company employees)7,500.007,500.0024/12/2019Towngas business bank account Trade debtors (Payment received from Mantra Sun City for kitchen appliances.)46,000.0046,000.0025/12/2019StationaryPostageGST paid Visa card (Towngas)(Purchase of stationery and postage payment using the visa card)363.64.00136.3650.00550.0026/12/2019Towngas Business bank account Shareholder’s capital(Capital injection to the company from an owner)12,000.0012,000.00All journal reportProfit and loss statementCash flow statementLooking at my financial statements, it is clear that my company earns revenue from providing gas utility service and the sale of kitchen appliances in the market. According to the income statement, the company has generated $ 87,409.08 as the sales revenue. This mainly comprised of the income earned by selling kitchen appliances and providing gas utility to the businesses. The company has incurred $ 3,27273 as expenses, including wages, electricity, stationery and postage. Towngas has earned a gross profit of $ 71,772.72 and a net profit of $ 60, 999.99 for the period. The company has $ 100,650.00 worth current assets that include cash at bank and trade debtors. The company has $ 27,650.01 of current liabilities including borrowings and trade creditors. The company has $ 72,999.99 of net assets at the end of December. I used ratio calculations to analyse the financial statements of the company. Net profit margin of the company = (Net profit after tax / sales) *100 = $60,999.99/$ 87,409.08 = 69.79%Return on assets = (Net profit after tax / total assets) *100= $60,999.99/ $100,650= 60.61%Total asset turnover ratio = (sales /total assets) = ($ 87,409.08/$100,650) = 0.87 Current ratio = (Current assets /current liabilities) = ($100,650/ $27,650.01) = 3.64According to the ratio calculations, the company is operating at earning high profits as the net profit margin is 69.79%. The company is in a good financial position as return on asset ratio is 60.61%, total assets turnover is 0.87 and current ratio is 3.64. The company also has generated $29,300 from the operating activities and $12,000 from financing activities during the period. Net cash flow at the end of the period was $41,300. Towngas company has a good liquidity position as it has a sufficient cash flow in meeting company obligations. Step 10I opened the annual reports of Hong Kong and China gas to explore depreciation expense for the years 2018, 2017 and 2016. It was recorded under the operating expenses in the income statement. What is depreciation? It is a non-cash expense of a firm that reduces the value of the physical asset over its useful life because of its expected usage and expected wear and tear. According to the information of the annual reports, the management of Hong Kong and China Gas company decides the estimated useful lives and related depreciation charges for its property, plant and equipment. This estimate is based on the historical experience of the actual useful lives of the property, plant and equipment of similar nature. The management will change the depreciation where useful lives are different from the previously estimated lives. It will also write down technically obsolete or non-strategic assets that have been abandoned or sold. Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment by Hong Kong and China Gas company. What is useful life? The time period that the depreciable asset is expected to be used by the company. What is residual value? The estimated value of an asset at the end of useful life. What is depreciable amount? It is the cost of the asset, minus residual value. I was keen to find out the method that my company uses to calculate depreciation. What are the methods of calculating depreciation? There are three methods, including straight line method, reducing balance method and units-of-production method. How firms chose a method? I thought it is interesting the way firms decide a method for depreciation. If firms think that the assets will generate revenue evenly over the years, they choose the straight-line method. If a firm thinks that the asset will generate more revenue in its early years, they use the reducing balance method. I found out that my company uses the straight-line method to depreciate the property, plant and equipment over the years. This method allocates an equal amount of depreciation to each and every period of the useful life of the assets. Hong Kong and China Gas company has used this method to allocate the cost less accumulated impairment of each component of the asset to its residual value over its estimated useful life as follows: Production plant and related equipment 10 – 40 years Vehicles, office furniture and equipment 5 – 15 years Gas mains and risers 25 – 40 years Water mains 30 – 50 years Gasholders, office, store and buildings 20 – 40 years Meters and installations 5 – 30 years Mining and oil properties Based on the units of production method utilising only estimated recoverable coal and oil reserves as the depletion base Others 5 – 30 yearsThe company has allocated HK$ 2,537.2 as the depreciation and amortisation expense for the accounting year 2018 in the income statement. They have recorded HK$ 2374.80 for 2017 and HK$ 2223.1 in 2016 as depreciation. This includes the depreciation of buildings, plant and equipment, vehicles, mains and risers, meters and installations, mining properties and others. Buildings, plant and equipment and mains and risers are the two main non-current assets that contribute to the company depreciation expenses. Accumulated depreciation was calculated for each category of assets and recorded under the notes by the company. Total accumulated depreciation in 2018 was HK$ 22,093.7, HK$ 20,311.3 in 2017 and HK$ 17,544.2 in 2016. Depreciation is a significant expense for my firm. It is the third largest expense of the company, after wages and other operating expenses. The company owns several production plants in many countries and the usage of a variety of equipment for gas extraction as non-current assets. Therefore, the company depreciates these items and incurs a higher expense for depreciation and amortisation. Hong Kong and China Gas company reviews residual values and useful lives of the assets at each date of the statement of financial position are adjusted if appropriate. What is revaluation? Firms match the value of assets to their fair value. Revaluation could be an increase or a decrease in the value of the assets. If a firm decided to revalue an asset, it must revalue all the assets in that class. Journal entriesIt is assumed that the accountants of the firm have calculated the depreciation expenses of the production plant, mains and risers and meters for the year 2018 as follows. They have used the straight- line method. They have calculated the depreciable amount by deducting the residual value from the cost of non-current assets. They have divided the depreciable amount by using the useful life. AssumptionsAssetCostResidual ValueUseful LifeProduction PlantHK$ 250,000HK$ 100,00030 yearsMotor vehicleHK$ 100,000HK$ 40,00010 yearsGas mains and risers HK$ 120,000HK$ 35,00025 years3143250857260-190500114300Annual depreciation = Depreciable amount Annual Depreciation = Depreciable amountUseful lifeUseful lifeProduction plant = (HK$250,000-HK$100,000) Motor vehicle= (HK$ 100,000-40,000)20 years10 years= HK$ 7,500 per year = HK$ HK$ 6,000 per year-161925229235Gas mains and risers = (HK$120,000-HK$35,000)25 years=HK$ 3,400 per yearGeneral JournalDecember 31Depreciation expense Accumulated depreciation- Production plant(Depreciation expense for the year 2018) 7,5007,500December 31 Depreciation expense Accumulated depreciation- Motor vehicles(Depreciation expense for the year 2018)6,0006,000December 31 Depreciation expense Accumulated depreciation- Mains and risers (Depreciation expense for the year 2018)3,400 3,400The total depreciation expense of production plant, vehicles and risers were recorded in the income statement under expenses. The accumulated depreciation was deducted from the value of the related asset and recorded the net cost of the assets in the balance sheet at the end of the accounting period.The depreciation entries can be manipulated by the management of the company. Firms may do this by overstating the value of assets and understating the depreciation expense to increase the profit. Firms can extend the estimated useful life which leads to decrease the depreciation expense and increase profit at the end of the financial period to get financial benefits. Step 11Feedback that I provided for other students.Feedback From: Vithanage PereraFeedback To: Kanako Tajima.My CommentsStep 7InventoriesYou have explored your company financial statements and identified types of inventory and the inventory calculation method that the company uses to value it. It is good that you have shared your personal experience regarding stock taking. You can add the inventory figures of the year 2016 to improve the content. Also, you can add some information to the step such as other methods firms use to value their inventories and the questions you had when exploring inventories. Step 8You have included the screen shots of the setting up and the training phases of MYOB. I would like to recommend you add a screenshot of your supplier or customer list of accounts as well. You have completed MYOB quiz well and provided the screenshot of the results. MYOB set upMYOB trainingMYOB quizStep 9Business transactions All Journals reportFinancials and discussionYou have recorded ten transactions and provided all journal report of the transactions. You have generated the income statement and the balance sheet of your company for the period and exported it to excel. You have used efficiency ratio to discuss about the financial statements. You can add few other ratio calculations, such as net profit margin, return on asset and current ratio to improve the quality of your work. Step 10DepreciationYou have provided the details of the property, plant and equipment of the company. You have identified the depreciation method that your company uses to depreciate their assets. You have passed three journal entries for the depreciation expenses.OverallYou have done a great job by completing each step. Feel free to add the information that I suggested. Feedback From: Vithanage PereraFeedback To: Shiqi Xue.My CommentsStep 7InventoriesYou have discussed about the concepts of inventory in detail. You have explored your company financial statements and provided the information regarding the inventory very well. Step 8You have provided a couple of screenshots of the setting up and the training phases of MYOB. Well-done. You have completed MYOB quiz with a good score and provided the screenshots of the results as well as the questions that you have answered. MYOB set upMYOB trainingMYOB quizStep 9Business transactions All Journals reportFinancials and discussionYou have recorded the selected transactions and presented those very clearly. You have generated the all journal report of the transactions successfully. You also have generated the income statement and the balance sheet for the period of operations. You have discussed about the financial statements very well by explain the current financial position of the company. You have mentioned about ratio calculations as the tool that can be used to analyse the financial statements. It will be great if you calculate few ratios by using the numbers of the financial statements and reflect on those values. It will improve the quality of your work. Step 10DepreciationYou have discussed on the concepts of depreciation clearly. You have explored the annual reports and identified the depreciation method and the policies of your company. You have discussed how much the company has allocated for depreciation expense each year. You have passed three journal entries for depreciation expense successfully. You have clearly discussed how these expenses can be manipulated by firms.OverallThe quality of the assignment is very good. You have done a great job. Feedback From: Vithanage PereraFeedback To: Ninghao Yang.My CommentsStep 7InventoriesYou have mentioned what is inventory and what items it could include in your discussion. You have mentioned that there are no inventories of your company financial statements. It would be great if you have the opportunity to explore about inventories.Step 8You have included the screenshots of the setting up and the training phases of MYOB successfully. You have completed MYOB quiz well and provided the screenshot of the results. MYOB set upMYOB trainingMYOB quizStep 9Business transactions All Journals reportFinancials and discussionYou have provided all journal report of the transactions. You have generated the income statement and the balance sheet of your company for the period. You have used ratio calculations and analysed the company financial statements very well. I would like to recommend you, record your transactions (mention what are your ten transactions are) in the step as Maria has suggested in the assignment guide. Step 10DepreciationYou have identified the depreciation method of your company and discussed how they have calculated those. Please discuss about the company depreciation expenses of year 2017 and 2016 to improve the quality of the discussion. You have passed three journal entries for the depreciation expenses as required. You also have clearly discussed how these expenses can be manipulated by firms.OverallYou have done a good job. please add the suggested adjustments if you like. Feedback that I receivedFeedback From: Shiqi XueFeedback To: Vithanage Perera.My CommentsStep 7InventoriesA very well written reflection over learnings made about the concept of inventory. All the key requirements are considered. Discussion includes the actual values of the accounts related to inventory of the case company. Overall the understanding of the inventory concept is evident from the Step 7 of the student.Step 8A considerable number of screenshots of the setup, training and quiz is included in the step 8. This reflects the efforts and learnings made by the student to complete the step. In this respect, it can be said that student has applied utmost honesty to complete this step, which can be evidenced from the screenshots attached.MYOB set upMYOB trainingMYOB quizStep 9Business transactions All Journals reportFinancials and discussionSelf-made transactions are presented. However, these transactions are not journalised manually. All journal reports, balance sheet, profit and loss and cash flow statement is extracted from MYOB is attached to the step. Discussion over the results of the company is provided. However, the length of discussion is short. A more detailed analysis and answers to the key question would have reflected better understanding of the questions.Step 10DepreciationThree journal entries are included. The clear discussion is made over the depreciation concepts and treatments of the case company.OverallThe best assignment over the step 7-10, I have read. This assignment has highlighted corrections which I need to make in my assignments.Feedback From: Isaac LammiFeedback To: Vithanage Perera.My CommentsStep 7InventoriesYou have done a great job in this step. I can see that you grasp the concepts well and you have provided detailed information and explanations on content in this section. Step 8I feel like I may have not done enough screen shots when looking at assignment drafts like yours. You have clearly demonstrated your learning processes and it is great to see you did so well on the MYOB EzyLearn skills and training test. Well done.MYOB set upMYOB trainingMYOB quizStep 9Business transactions All Journals reportFinancials and discussionWell done on this step, some suggestions include;Putting your hypothetical transactions into an itemised table to better present your work.More detailed explanations on each of the reports downloaded from MYOB to demonstrate your understanding of the content. Step 10DepreciationWell done you have followed criteria well in this section and have given a clear demonstration of your knowledge concerning depreciation good job!OverallOverall well done and good luck on your exam!I received some valuable feedback from my fellow students. The feedback was valuable as it helped me to improve the quality of my work by making the adjustments that people recommended for me. I also found it interesting as I had the opportunity to read the assignments of others and do my own corrections and additions to my steps. ................
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