Question

Top Cake shop was established on 1 April 2019 with an initial investment of $100,000 by the owner (Jack Claff). During the first few weeks of business, the owner employed a part-time book-keeper who recorded the following list of accounts:

Accounts payable                                  $37,100

Buildings                                              100,000

Cash at bank                                         31,000

Furniture                                              12,000

Jack Claff – Capital                                150,000

Baking Supplies                                     5,600

Loan payable                                        20,700

Accounts receivable                              20,000

Land                                                     43,200

Mortgage payable                                 40,000

Cash drawings by Jack Claff                    36,000

Required:                                             

1. Assuming that the amounts above are correct, prepare a statement of financial position in vertical format illustrated on page 56, Example 2.3. (show your calculations) (4 marks)
2. Prepare a statement of changes in equity for the period and determine the amount of profit (loss) made by the business during the period of its first few weeks of existence, assuming that the owner had invested an additional $20,000 into the business just before the above amounts were calculated by the book-keeper. (must show your calculations) (3 marks)
3. Why is it that, in an entity’s financial statements, assets leased by an entity are sometimes shown on that entity’s balance sheet even though those assets are not legally owned? Explain. You should disclose the source of your information by referencing and support your statements by research and readings. (3 marks)

Answer 1

Answer-a:

Statement of Financial Position 155,200 ASSETS Non-current assets: Building Furniture Land 100,000 12,000 43,200 56,600 Current assets: Cash at Bank Baking supplies Account receivable 31,000 5,600 20,000 TOTAL ASSETS 211,800 Owner's equity: Capital, Jack Claff Less: Drawing, Jack Claff 150,000 36,000 114,000 60,700 Non-current liabilities: Loan payable Mortgage payable 20,700 40,000 37,100 Current liabilities: Account opayable TOTAL EQUITIES AND LIABILITIES 211,800

Rest part to be solved shortly....