Business School

ACCT1501 Accounting and Financial Management 1A

Session 1 2016

TUTORIAL WEEK 4 Solutions to Preparation Questions

Preparation Questions:
DQ 3.1, 3.2, 3.4, P3.16, P3.18, Case 3A
DQ3.1
Another asset may have decreased
A liability may have increased and/or
Shareholders equity may have increased
DQ3.2
A = L + OE
a not possible, as the right hand side of the accounting equation will exceed the left
hand side
b possible, e.g. share capital issued to reduce debt
c not possible, as the left hand side of the accounting equation will exceed the right
hand side
DQ3.4

Expenses decrease profit. A decrease in profit results in a decrease in retained profits.

Retained profits are a category of shareholders equity, therefore, a decrease in expenses,
decreases shareholders equity.

The other parts of the accounting equation likely to be affected will either be an
increase in liabilities (for example an increase in a payable when an expense is incurred) or a
decrease in an asset (for example, when cash is paid out upon occurrence of an expense.
P3.16
1
2
3
4
5
6
7
8
9
10
11
12

Non-current asset
Non- current liability
Current asset
Shareholders equity
Current asset
Non-current liability
Current liability
Current asset
Non-current asset
Current liability
Non-current asset
Shareholders equity

Dr
Cr
Dr
Cr
Dr
Cr
Cr
Dr
Dr
Cr
Dr
Cr
1

P3.18

Transaction
Cash sale for service revenue

Journal entry
$10,000

Paid $8,000 of this years wages and $2,000

of wages payable from previous year

Paid accounts payable

Income tax calculated as $5,900; $5,000 paid

now and $900 payable later

5
6

7
8

$3,220

Customers paid $350 as deposits on future

purchases
$600 paid to auditors, and $2,400 still owing

Equipment acquired for an agreed price of

$5,200 in return for shares
Goods costing $5,500 sold for $9000. $2,400
sales were for cash and $6,600 were on credit

Dr Cash
Cr Service revenue
10,000
Dr Wages expense
Dr Wages payable
Cr Cash
10,000
Dr Accounts payable
Cr Cash
Dr Income tax expense
Cr Cash
Cr Income tax payable
Dr Cash
Cr Unearned revenue
Dr Auditing Expense
Cr Accounts payable
Cr Cash
600
Dr Equipment
Cr Share capital
Dr Cost of goods sold
Cr Inventory
Dr Cash
Dr Accounts receivable 6,600
Cr Sales

10,000

8,000
2,000

3,220
3,220
5,900
5,000
900
350
350
3,000
2,400

5,200
5,200
5,500
5,500
2,400
9,000

Case 3A
1 Period covered by the profit and loss statement 52 weeks ended 29 June 2014.
2 Main types of revenues
i Revenue from the sale of goods
60,772.8m
ii Other operating revenue
179.4m
iii other revenue
242.7m
3 Larger expenses incurred in earning revenue expenses not provided in detail (below are
some examples of the disclosed expenses):
i Cost of sales
44,474.6m
ii Employee benefits (note 2)
7,293.8m
iii Lease expenses (note 2)
1,898.7m
iv Depreciation and amortisation (note 2)
996.3m
v Income tax (note 5)
1,056.7m
4 Interest expense for the year (note 3)
352.0m
Interest revenue for the year
9.8m
5 Cost of goods sold for the year
44,474.6m
6 Total depreciation and amortisation for the year
996.3m
7 Retained profits increase from 4,661.1m in 2013 to 5,423.1m in 2014, the main changes
resulted from net profit from the period less dividends declared.
8 Income tax expense for the year
1,056.7m
2

9 Basic earnings per share for 2011

196.5 cents.
10 Dr for trade debtors, inventory, investment, land and building, advance to employees;
Cr for trade creditors, provision for income tax, provision for dividends and retained profits.
11 Debit for inventories, receivables and intangibles; credit for accounts payable and retained
profit.