Task 1 (15 marks – approximately 750 words) Laura Prebble, the owner-manager of a small business, had carefully monitored her cash position over the past financial year, and was pleased to note at the end of the year that the cash position was strong, and had shown a healthy 50% increase over the year. When presented with the income statement for the year, she was dismayed to note that the profit earned in the last year had deteriorated significantly and had become a loss for the current period. In her anger, she accuses you of having made errors in the accounting since 'such a silly situation could not possibly exist'. Required Draft a response to Laura.

Task 2 (10 marks – approximately 500 words) 'A statement of cash flows is of limited use as a business needs to know if it will have sufficient cash to support its planned future activities.' Required Discuss the merit of this statement focusing on both the purpose and limitations of a statement of cash flows.

Task 3 (10 marks – approximately 500 words) After calculating the current ratio for an entity and finding that the ratio's value was 5:1, a student analyst decided that the company was in a sound position for paying its liquid liabilities. Required Discuss the shortcomings of making such a conclusion. Assessment Information

COMMONWEALTH OF AUSTRALIA Copyright Regulations 1969 This material has been reproduced and communicated to you by or on behalf of Kaplan Business School pursuant to Part VB of the Copyright Act 1968 ('Act'). The material in this communication may be subject to copyright under the Act. Any further reproduction or communication of this material by you may be the subject of copyright protection under the Act. Kaplan Business School is a part of Kaplan Inc., a leading global provider of educational services. Kaplan Business School Pty Ltd ABN 86 098 181 947 is a registered higher education provider CRICOS Provider Code 02426B.

Task 4 (15 + 5 = 20 marks) The financial statements for the business of Trinh's Nail Supplies for the past two years are presented below. TRINH'S NAIL SUPPLIES Comparative Income Statements for the year ended 30 June 2016 2017 Sales $ 400  000 $ 500  000 Cost of sales 350  000 458  000 GROSS PROFIT 50  000 42  000 Interest income 1  000 2  000 Loss on sale of fixtures — 800 51  000 43  200 Office supplies used 10  000 11  000 Other expenses 29  000 29  000 39  000 42  000 Profit $ 12  000 $ 3  200 TRINH'S NAIL SUPPLIES Comparative Statements of Financial Position as at 30 June 2016 2017 ASSETS Cash at bank $ 4  400 — Accounts receivable 42  000 $ 60  000 Inventory 80  000 40  000 Office supplies 2  000 5  000 Freehold property 60  000 80  000 Fixtures 40  000 46  000 Accumulated depreciation – fixtures (16  000) (20  200) Investments 6  000 16  000 $ 218  400 $ 226  800 LIABILITIES AND EQUITY Bank overdraft — $ 4  000 Accounts payable $ 26  000 40  000 Trinh, Capital 192  400 182  800 $ 218  400 $ 226  800

Assessment Information COMMONWEALTH OF AUSTRALIA Copyright Regulations 1969 This material has been reproduced and communicated to you by or on behalf of Kaplan Business School pursuant to Part VB of the Copyright Act 1968 ('Act'). The material in this communication may be subject to copyright under the Act. Any further reproduction or communication of this material by you may be the subject of copyright protection under the Act. Kaplan Business School is a part of Kaplan Inc., a leading global provider of educational services. Kaplan Business School Pty Ltd ABN 86 098 181 947 is a registered higher education provider CRICOS Provider Code 02426B. Additional information

a. All purchases and sales of inventories are on credit. All purchases of office supplies are for cash. b. The bank overdraft is considered to be part of the entity's cash management function. c. During the year ended 30 June 2017, the owner, Trinh, withdrew $12  800 in cash for personal use. d. The entity sold some fixtures for $1200 cash during the current year. These fixtures initially cost $4200 and had been written down to a carrying amount at the date of sale of $2000. e. Depreciation of fixtures has been included in 'other expenses' for the year ended 30 June 2017. All remaining other expenses were paid in cash. Required

1. Prepare the statement of cash flows for Trinh's Nail Supplies for the year ended 30 June 2017, using the direct method. 2. Comment on the cash flow position of the entity as shown in the statement of cash flows