GB518 | Assignment 4
Income Statement and
Changes in Owners Equity
Total marks
60 marks
Weight
10%
Due date
Wednesday of Week 6 (25th June 2014) by 5 PM
PLEASE NOTE THE FOLLOWING INSTRUCTIONS
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· This assignment must be completed individually.
· Submission: The assignment must be submitted electronically through the student portal use the link under Assessments to submit your assignment.
· This assignment consists of 5 questions and you are required to answer all of the questions. Please use this word document to complete the assignment and upload it on the portal.
· Please make sure you follow the guidelines noted in your subject outline especially those relating to presentation of written work, late policy and academic integrity.
Question 1 (10 marks | Word limit: 300)
The owner of a business reviews the income statement prepared by you and asks, Why do you report a profit of only $30,000 when cash collections of $100,000 were received and cash payments for the period totalled only $50,000 for expenses? How would you respond to the owners question?
Accrued income 50,000 to save owner paying tax n
Question 2 (10 marks | Word limit: 300)
On 31 March, Padbury Publishers received a subscription of $240 for the supply of twelve monthly magazines, beginning in April. At the end of the reporting period, 30 June, the accountant suggested that the owner make an adjusting entry to defer the revenue on nine issues until the next financial year. The owner of the business was reluctant to do so, claiming that he had already received the subscriptions in cash and could see no reason for the delay in recognising the revenue. Do you agree with the owner or the accountant? Respond to the owner, explaining the accountants position. Ignore GST.
$240divide 12 =20 for month, magazines already delieverd for april, may ,june,$60,240-60=180
After 3 months subscription the finance manager says the owner that will the remaining 9 months subscription money as liability. As 30th is end of financial year, so he wants to play it around, suggesting $180 for 9months in next year statement.
The revenue already has been received so, he is differing with other things,, revenue as expense
(Differed income in Wikipedia )
Question 3 (10 marks | Word limit: 300)
Depreciation is a process of allocation and not valuation. What do you think is meant by this statement? Give examples to support your answer.
Chalmers and oliver (2014, p.213) describes depreciation as an allocation or what it is now called amortisation of the depreciable amount of a depreciable asset over its estimated useful life. The nature of depreciation and amortisation is same because they both the expenses incurred in the income statement which further do not involve any outflow of cash as such. (Rama Rao 2010) further contribute to the statement of depreciation being an allocation process as it caters to spreading the cost of a fixed asset over its useful life less salvage value. So, a portion of that cost is recognised as an expense in each period that the asset is in service. For example:
A piece of machinery cost $ 11,000 with a serviceable life of 5 years.
The scrap value of the machine at the end 5th year is going to be $1,000
not $10,000 (i.e. $11,000 less $1,000) will be allocated over 5 years on rational basis.
(Accounting allocation 2011) fair value or valuation on the other hand, reflects the overall value of the remaining equipment, machinery etc., which is expected to be consumed by next 12 recognised months or so on. The net book value may not represent the actual market value of the asset. Many authors claimed that this approach is employed because the value/valuation of asset may fluctuate due to the time span when that has been purchased and the time it is sold. Also, values are difficult to measure where the allocation of price is rather straightforward. However, it is not a matter of valuation but a means of allocating the cost.
.accountingexplanation.com/depreciation_a_means_of_cost_allocation.htm”>http://www.accountingexplanation.com/depreciation_a_means_of_cost_allocation.htm
.citeman.com/8284-concept-of-depreciation.html”>http://www.citeman.com/8284-concept-of-depreciation.html