Greg Miller owns Greg's Gardening Supplies and has provided the following information as at 31...

Question:

Greg Miller owns Greg's Gardening Supplies and has provided the following information as at 31 January 2015:

Item $ Item $
Term Deposit (matures 2020) 8,000 Bank 700
Creditors 1,400
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.

Balance Sheet

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

Particulars Amount ($)
Motor Vehicle $22,000
Term Deposits $8,000
Stock 50,000
Bank 700
Total Assets $80,700
Less: Liabilities
Creditors $ 1,400
Loan $36,000
Wages Payable $600
Capital $42,700

b. Balance Sheet

Capital and Liabilities Amount ($) Assets Amount ($)
Capital $42,700 Non-Current Assets
Liabilities Fixed Assets
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
1.Creditors $1,400 Current Assets
2.Wages Payable $600 1. Stock $50,000
2. Bank $700
TOTAL $80,700 TOTAL $80,700

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:

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Comparative Statements as Balance Sheet Disclosures

from Accounting 201: Intermediate Accounting I

Chapter 4 / Lesson 9
918

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