Greg Miller owns Greg's Gardening Supplies and has provided the following information as at 31 January 2015:
|Term Deposit (matures 2020)||8,000||Bank||700|
|Wages Owing||600||Motor Vehicle||22,000|
|Stock||50,000||Loan from ANZ due 2025 (repayable $2,000 pa)||36,000|
a. Calculate Capital as at 31 January 2015
b. Prepare a classified Balance Sheet for Greg's Gardening Supplies as at 31 January 2015.
c. Referring to your answer to part 'b', explain your treatment of Stock.
d. The motor vehicle is three $15 200, rather than $22 000 as listed in the Balance Sheet. Discuss how the motor vehicle should be valued, citing at least two qualitative characteristics in your answer.
A Balance Sheet is a part of financial statements. It lists out the assets, liabilities and capital of the business at a point of time normally the end of the accounting period which may a year, quarter or month. The balance sheet classifies the accounts on the basis of current and non current. Current accounts are those which will be either realized or are required to be paid within the operating cycle of the business or within a year. Whereas non current account are those which will exist for time period longer than the normal operating cycle of the business.
Answer and Explanation:
a. Computation of Capital
b. Balance Sheet
|Capital and Liabilities||Amount ($)||Assets||Amount ($)|
|Long - Term Liabilities||1. Motor Vehicle||$22,000|
|1. Loan from ANZ||$36,000||Long Term Deposits & Investments|
|Current Liabilities||1. Term Deposits||$8,000|
|2.Wages Payable||$600||1. Stock||$50,000|
c. Treatment of Stock
Stock has been classified as a current asset in our balance sheet as stock can be realized by the business in normal operating cycle of the business.
Also, the Stock in the balance sheet has to be shown at lower of cost or net realizable value. It has been assumed that the given value of stock is lower of cost or net realizable value.
d. Treatment of Motor Vehicle
Generally, the Fixed Assets are shown at historical cost less depreciation, We have assumed that the given value of the motor vehicle of $22,000 represents the written down value (cost less depreciation). As the Fixed Assets are not expected to be held for sale and to be realized in the normal operating cycle of the business, the net realizable value of the same is not considered.
Also because of the going concern concept, it is assumed that the business will continue and the business will not sold its assets and hold them for their useful life. Because of this concept also, the fixed assets are shown at the cost less depreciation value and not at their realizable value.
Learn more about this topic:
from Accounting 201: Intermediate Accounting IChapter 4 / Lesson 9