Question 1Mark Davies has started a lawn mowing business (MD Lawnmowing) as a temporary job/business which he intends to run until he starts his business degree at the University of South Australia in five months. Mark has never owned or run a business before. To start the business on 1 March 2014, he deposited $2,200 into a new bank account opened in the name of the business. The $2,200 consisted of a $1800 loan from his father and $400 of his own money. Mark rented some equipment, purchased supplies, and hired friends to mow and trim his customer’s lawns.At the end of each month Mark sent invoices to his customers. On 31 July, he was ready to dissolve the business and start his university studies. As he was so busy, he kept few records other than his cheque book and a list of amounts owed to him by customers.At 31 July, Mark’s business account cheque book shows a balance of $1,880, and his customers still owe him $600. During the period, he collected $4,750 from customers. His cheque book lists payments for supplies totalling $480, and he still has fuel and supplies that cost a total of $50 on hand. He paid his employees $2,100, and he still owes them $300 for their final week of work. Mark rented some equipment from Kennard’s Hire. On 1 April, he signed a six-month rental agreement on lawnmowers and paid $720 for the full period. Kennard’s Hire will refund the unused portion of the prepayment if the equipment is in good order when he returns it. In order to get the refund, Mark has kept the equipment in excellent condition. In fact during May paid $200 to repair one of the mowers.To transport employees and equipment to jobs, Mark used a trailer that he bought for $450. He believes that the period’s work used up one-third of the trailer’s service potential. The business cheque book lists a payment of $520 for private cash withdrawals by Mark during the period. In July Mark paid back a third of the amount his father had lent to him. Mark estimates that he spent approximately 75 hours working on the business during the period. He plans to recommence operations on a similar basis during major breaks in his university study and believes he will do better in later periods as he now has an existing customer base to work from. RequiredPrepare the business Income Statement for the period. (9 marks)Prepare the classified Balance Sheet at the end of the period. (11 marks)Was Mark’s venture successful? Give the reasons for your answer. 150 – 250 words only. (5 marks)Total for Question 1: 25 marksQuestion 2 Question 4You are provided the following financial information for Reliance Ltd:RELIANCE LTDCOMPARATIVE BALANCE SHEETSAS AT JUNE 30 2014 2013 Current AssetsCash on Hand $1500 $4000Cash at Bank – 1200Accounts Receivable (net) 5200 4500Inventory 20000 18000Prepaid Expenses 1650 28350 800 28500Non Current AssetsPlant and Equipment 74000 64000less Acc. Depreciation (23000) 51000 17600 46400Total Assets 79350 74900Current LiabilitiesBank Overdraft 5660 -Accounts Payable 4000 3800Accrued Expenses 780 790Tax Payable 720 11160 1200 5790Non Current LiabilitiesBank Loan 20000 20000Total Liabilities 31160 25790Net Assets 48190 49110EquityShare Capital30000 26000Retained Earnings18190 2311048190 49110 (continued over the page)RELIANCE LTDINCOME STATEMENTFOR THE YEAR ENDED JUNE 30, 2014Net Sales$93000Cost of Sales 54200Gross Profit: 38800Other Revenue:Interest Revenue 60Discount Received 400 460 39260Expenses:Selling & Admin Expense 19000Doubtful Debts Expense 200Depreciation Expense 5400Interest Expense 240027000Profit before tax12260Income tax expense 3378Profit $ 8882Note: Bad debts written off during the year were $200REQUIRED:Answer this question on the separate question 3 pro forma provided.Prepare a Statement of Cash Flow in the format required by the applicable accounting standard. Show all calculations in your answer.[14 marks]The owners of Reliance Limited cannot understand why there is such a difference between the profit for the period and the total cash flows. Briefly explain some of the factors causing this difference.[2 marks]What information is provided by a Statement of Cash Flow which is not provided by other Financial Statements? (ie: Income Statement, Balance Sheet and Statement of Changes in Equity)[2 marks]TOTAL FOR QUESTION 4: 18 Marks
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