Accounting Business Reporting for Decision Making

CHAPTER 3 Business structures 113

It was also agreed that Samuel would act as manager with an annual salary of $65 000, to be allocated

at the end of each year. Profits or losses would be divided between Samuel and Isabelle in the proportion

2/3 and 1/3 respectively.

Gross profit for the year ended 30 June 2018 was $165 000, with operating expenses of $105 000.

Samuel withdrew $19 500 and Isabelle withdrew $4000 during the year.

Required

a. Prepare the balance sheet of the partnership on its formation (30 June 2017). 8 marks

b. Calculate each partner’s share of profit for the year ended 30 June 2018. 6 marks

PART C

The directors of Carlos Ltd provide you with the following financial information for the period ended

30  September 2016: selling expenses $96 000; occupancy expenses $12 000; finance expense $26 400;

loss due to legal action $5400; administrative expense $20 400; cost of sales $180 000; ordinary share

capital (100 000 shares issued) $300 000; sales revenue $720 000; other revenue $15 000; dividends

declared (for current period) $14 400; retained earnings at beginning $258 000. Income tax is to be

applied at a 30 per cent rate to profit before tax.

Required

a. Prepare a statement of profit or loss for Carlos Ltd for the period ended 30 September 2016. 7 marks

b. Determine the closing balance of retained earnings at 30 September 2016. 3 marks

c. Public companies have to comply with extensive reporting regulations, including the

Corporations Act and the Listing Rules of the ASX. Explain the reasons why public

companies have additional regulations compared to proprietary companies and how

the additional reporting disclosures assist different users in making decisions about

the allocation of scarce resources. 4 marks

Self-evaluation activities

3.1 Charley Bucket has worked as a secondary school teacher for 15 years. Her dream had always been

to work for herself selling a variety of confectionery types. In 2015, she inherited $80 000 cash from her

grandmother, and decided to use some of this money to purchase a lolly shop (Freckles) in nearby Toowong.

For the financial year ended 30 June 2016 Charley provides you with the following details:

lolly  sales $144 000; cost of sales $64 000; administrative expenses $5120; rent of shop $22 400;

casual wages $4800; interest on loan $9280; electricity and gas expense $3200; cash at bank $19 680;

shop fittings $20 000; cash on hand $6400; accounts payable $3680; display case (asset) $12 800.

Use the above information to prepare a statement of profit or loss and a balance sheet for Charley

operating as a sole trader. Calculate Charley’s capital contribution.

SOLUTION TO 3.1

Freckles — Charley Bucket

Statement of profit or loss for the financial year ended 30 June 2016

Income

Lolly sales

Cost of sales

$144 000

64 000

Gross profit

Expenses

Administrative expense

Shop rental expense

Casual wages expense

Interest on loan

Electricity and gas expense

$5 120

22 400

4 800

9 280

3 680

80 000

Total expenses 44 800

Profit $35 200