ABC Pte Ltd Trial Balance 31 December 20X1 Account Title Debit Credit $ $ Cash 31,000 Accounts receivable 39,800 Notes receivable 5,000 Prepaid insurance 3,000 Prepaid rent 12,000 Supplies on hand, 1 Jan 7,000 Purchases (Supplies) 100,000 Equipment 102,000 Accumulated depreciation - Equipment 36,720 Building 1,000,000 Accumulated depreciation - Building 80,000 Land 2,200,000 Accounts payable 44,850 Notes payable 10,000 Share capital 2,500,000 Retained earnings 212,000 Dividends 43,000 Service revenue 882,880 ACC201e Assignment 2 SIM UNIVERSITY Assignment 2 – Page 3 of 4 Insurance expense 1,250 Advertising expense 1,400 Salaries expense 221,000 3,766,450 3,766,450 The supplies on hand as at 31 December were $4,000. The supplies were used in providing service to customers. You did some preparation work and discovered the followings: Additional information (i) As at 31 December, the amount owing to workers was $9,380. The account clerk debited the amount to salaries expense and credited to accounts payable. (ii) On 1 September, the company issued a 6 months $10,000 promissory note to one of its suppliers. The note bears an annual interest of 6%. Both principle and interest will be paid on maturity. (iii) On 1 October, the company decided to open another service outlet nearer to its customers. The company paid $12,000 for the 1 year rent for the office. The company also bought a 1 year insurance coverage for the office at the same time paying $3,000 for the insurance policy. (iv) The company adopts the following depreciation policies: Land No depreciation to be taken but cost subject to annual review and revaluation. Building Straight-line method over 50 years useful with zero residual value. Equipment Double declining method over 10 years useful life with residual value at 10% of its original cost. (v) On 1 November, the company received a 3 months $5,000 promissory note from a customer. The note bears an annual interest of 6%. The company will receive principle and interest payment on maturity. (vi) On 28th December, a customer paid to the company $7,500 for a job to be done next month. (vii) The company was advised by the tax consultant the income tax for the year would be $6,800. Required: (a) Illustrate the necessary adjusting journal entries to record the additional information provided for ABC Pte Ltd for the year ending 20X1. (20 marks) (b) After making all the necessary adjusting entries, prepare: (i) The statement of comprehensive income for ABC Pte Ltd for the year ending 31 December 20X1. (12 marks) (ii) The statement of financial position for ABC Pte Ltd as at 31 December 20X1. (13 marks) Question 2 The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions (IASB Framework). However, users should also be aware of the limitations of financial statements in their decision-making process. Describe five (5) limitations of accounting and financial reporting in the preparation of financial statements. (25 marks) Question 3 Analysing financial statement information is one of the important elements in the investment decision making process. However, the massive amount of numbers in a company's financial statements can be bewildering and intimidating to many investors. Financial ratio analysis helps an investor to work with these numbers in an organized fashion. Select a company you are familiar with or any public listed company in which you are able to obtain financial statements for analysis. Required: (a) Explain briefly the nature of the business and the environment the company is operating in, highlighting some of the company’s key competitors. (6 marks) (b) From the financial statements, compute the following ratios over a 2 years period and comment on the performance of the company. The financial statements must be as current as possible and copies of the relevant statements should be included in the appendix: (i) Asset turnover; (ii) Return on total assets (ROA); (iii) Debt ratio; (iv) Times-interest-earned ratio; (v) Inventory turnover; (vi) Accounts receivable turnover; (vii) Accounts payable turnover; and (viii) Cash conversion cycle