Tutorial Answer (W3)

ACCY 121
Chapter 4: Business transactions
4.16 Classify each of the following according to whether it is an asset, liability or equity account.
Apply your learning from the definitions in the introduction to accounting and business decision
making chapter to provide a justification for each classification.

a. Trade receivables b. Intangible assets c. Borrowings

d. Retained earnings e. Contributed equity f. Current tax liabilities

g. Deferred revenue h. Inventory i. Plant and equipment

j. Trade payables k. Cash and cash equivalents l. Prepayments

a. Asset b. Asset c. Liability d. Equity e. Equity
f. Liability g. Liability h. Asset i. Asset j. Liability k. Asset l. Asset

4.20 State the effect of each of the following business transactions for Trevor’s Trampolines. For
example, in (a) we increase cash and increase capital.
a. P Trevor commenced business by injecting cash into her business.
b. Paid wages.
c. Purchased goods for sale on credit.
d. Sold goods on credit
e. Received an invoice for annual insurance on building and paid the account.
f. P Trevor withdrew an iPad from the business.
g. Sold inventory for cash.
h. M Kramer (accounts receivable) paid amount outstanding.
i. Trevor’s Trampolines paid accounts payable in full.

a. increase cash (ASSETS) and increase capital (EQUITY)

b. decrease cash (ASSETS) and decrease equity because of increase in expense.
C. increase inventory (ASSETS) and increase accounts payable (LIABILITY)
d. Increase in equity because of increase in revenue and increase accounts receivables. Decrease in inventory
and decrease in equity because of cost of goods sold expense.

e. decrease cash (asset) and decrease equity because of expense.

f. decrease office equipment and decrease equity because of drawings.
g. increase cash (assets) and increase equity because of revenue, decrease inventory and decrease in equity
because of cost of goods sold expense.
h. decrease accounts receivable (asset) and increase cash (asset)
i. decrease cash (asset) and decrease accounts payable (liability)
4.25 Understanding business transactions
For each of the following scenarios, explain why each transaction is or is not a business transaction.
a. Maggie, a sole trader, meets with her bank and negotiates a loan to provide additional finance to
her business.
b. Maggie, a sole trader, purchases inventory for his store using EFTPOS.
c. Mulvey Ltd signs an employment contract for a new director two months before they actually start.
d. Smith & Co receives an invoice for internet expense.
e. Smith & Co pays the internet expense outstanding.
f. A partner from Dixon Associates withdraws a laptop from the business for home use.
g. Maggie, a sole trader, has lunch with a potential client and discusses a discount incentive scheme
for future business between the two parties.
h. The partner from Dixon Associates uses personal funds for a new home theatre system.

a. This is only a negotiation. No transaction has taken place at this point in time.
b. This is a transaction. Using EFTPOS is payment by cash. The business is purchasing inventory for the business
and payment is by cash.
c. Signing a contract is not a business transaction. If the employee is paid in advance, then this is a business
transaction, or if the employee performs the tasks associated with his/her contract, this will result in the
business incurring an expense.
d. This is a business transaction as the business has used the internet and has received an invoice informing them
of the charges.
e. This is also a business transaction as the business has paid the amount outstanding for the internet which has
resulted in the cash account decreasing and the liability decreasing (accounts payable).
f. This is a business transaction as the office equipment will decrease and drawings of capital will increase
(decrease equity).
g. This is just a discussion; it’s not a business transaction until the scheme is implemented to the debtor’s
account.
h. Personal funds are a personal transaction and not a business transaction.

1. Solve for the missing financial numbers as they would appear on the statement of financial position.

a. 81 000 (35 000 + 46 000) i. 138 000 (122 000 + 16 000)

b. 9 000 (37 000 – 28 000) j. 15 900 (22 900 + 17 000 – 24 000)
c. 14 000 (44 000 – 30 000) k. 39 900 (15 900 + 24 000)
d. 57 000 (81 000 + 60 000 – 84 000) l. 14 800 (17 000 - 2200)
e. 141 000 (81 000 + 60 000) m. 82 186 (129 127 – 46 941)
f. 52 000 (81 000 – 29 000) n. 28 255 (68 755 – 40 500)
g. 136 000 (295 000 – 159 000) o. 11 622 (60 372 – 48 750)
h. 122 000 (295 000 – 157 000 – 16 000)

2. From the following account balances of Platypus Pty Ltd as at 30 September 2022,
produce a statement of financial position in both the T-format and the narrative
classified format.
Statement of financial position in T-format:

PLATYPUS PTY LTD

Statement of financial position

as at 30 September 2022

Current assets Current liabilities

Cash at bank $ 55 000 Loan payable $ 12 000

Accounts receivable (net) 27 500 Tax payable 4 500

Inventory 50 000 Total liabilities $ 16 500

132 500

Non-current assets Equity

Land 60 000 Share capital $ 50 000

Fixtures and fittings 8 000 Retained earnings 134 000

68 000 Total equity 184 000

Total assets $ 200 500 Total liabilities and equity $ 200 500
Statement of financial position in narrative format:

PLATYPUS PTY LTD

Statement of financial position

as at 30 September 2022

Current assets

Cash at bank $ 55 000

Accounts receivable (net) 27 500

Inventory 50 000

Total current assets $ 132 500

Non-current assets

Land $ 60 000

Fixtures and fittings 8 000

Total non-current assets $ 68 000

Total assets $ 200 500

Current liabilities

Loan payable $12 000

Tax payable 4 500

Total liabilities $ 16 500

Net assets $ 184 000

Equity

Share capital $ 50 000

Retained earnings 134 000

Total equity $ 184 000

3. From the following account balances of Revolution Pty Ltd as at

30 June 2022, prepare a statement of financial position in both the
T-format and the narrative classified format.
Cash at bank $1 000

Accounts receivable (net) 12 250

Inventory 16 000
Plant and equipment 87 500

Goodwill 45 000

Accounts payable 8 750

Borrowings 46 000

Provisions 10 000

Share capital 60 000

Retained earnings 37 000

REVOLUTION PTY LTD

Statement of financial position

as at 30 June 2022

Current assets Current liabilities

Cash at bank $ 1 000 Accounts payable $ 8 750

Accounts receivable (net) 12 250 Non-current liabilities

Inventory 16 000 Borrowings $ 46 000

 29 250 Provisions $ 10 000

$ 56 000

Total liabilities $ 64 750

Non-current assets Equity

Plant and equipment 87 500 Share capital $ 60 000

Goodwill 45 000 Retained earnings 37 000

132 500 Total equity 97 000

Total assets $ 161 750 Total liabilities and $ 161 750

equity

Statement of financial position in narrative format:

REVOLUTION PTY LTD

Statement of financial position

as at 30 June 2022
Current assets

Cash at bank $ 1 000

Accounts receivable (net) 12 250

Inventory 16 000

Total current assets $ 29 250

Non-current assets

Plant and equipment $ 87 500

Goodwill 45 000

Total non-current assets $ 132 500

Total assets $ 161 750

Current liabilities

Accounts payable $8 750

Non-current liabilities

Borrowings $ 46 000

Provisions 10 000

Total non-current liabilities $ 56 000

Total liabilities $64 750

Net assets $ 97 000

Equity

Share capital $ 60 000

Retained earnings 37 000

Total equity $ 97 000

Tutorial Answer
ACCY 121
Chapter 5: Statement of financial position

5.4 Discuss if the following statements are true or false.

a. The terms ‘accounts payable’ and ‘creditors’ mean the same thing.
 True — the terms ‘creditors’ or ‘accounts payable’ are used to describe entities/individuals to whom an entity
owes money, such as suppliers or utility companies.
b. The statement of financial position is a financial statement that shows the financial performance of
an entity as at a point in time.
False — the statement of financial position shows the assets, liabilities and equity of an entity at a point in time,
hence it is titled ‘Statement of financial position as at…’. On the other hand, the statement of financial
performance is a financial statement that shows the financial performance of an entity for the period.
c. Mr Startup invests his own cash to start a business. This transaction will increase the equity and
assets of the business.
True — the owner’s contribution of cash increases the assets of the entity. The dual effect of this is to recognise
that the owner has contributed equity to the business, and the equity in the statement of financial position
increases by the same amount as the assets have increased.

5.28 For each of the transactions identified, analyse how the asset, liability and/or equity accounts
increase, decrease or remain unchanged.
ASSETS (A) = LIABILITIES (L) + EQUITY (E)
a. Obtained a loan to ↑ Equipment $55 000 ↑ Loan $55 000
purchase equipment for
$55 000.

b. The owners took $4000 ↓ Inventory $4000 ↓ Equity as drawings

in inventory for personal increases by $4000
use.
c. A trade receivable, who ↑ Cash $2000
owes $6000, made a ↓ Accounts receivable
part payment of $2000. $2000

d. Purchased inventory for ↓ Cash $4000 ↑ Accounts payable

$10 000, paying $4000 ↑ Inventory $10 000 $6000
cash and the balance on
credit.
e. Impaired a building from ↓ Building $15 000 ↓ Equity as
its acquisition cost less impairment loss
 accumulated increases by $15 000
depreciation of $90 000
to its recoverable
amount of $75 000.

f. Inventory with a cost As inventory is

price of $42 000 had a measured at the lower of
net realisable value of cost and net realisable
$50 000. value, the value of
inventory remains to be
$42 000 (no effect on
inventory)