Assignment 1 Steps 7-11

Anuj Shukla

12098542

Step 7

Inventories are the goods or products that the company purchases in order to sell it or use it as a raw material to make another product. As mentioned in the assignment details, firstly I had a look at the annual reports of GR Engineering Services Ltd. as part of step 3 in order to ensure that the company, I am assigned has inventories. Secondly, I read chapter 4 sections about inventories, the methods of tracking inventory and I watched some videos by Martin Turner as well as part of understanding the concept of inventories. As I read the chapter, I got to know that there are two types of methods for recording inventories. They are as follows:

Perpetual: This method involves tracking the company’s purchases and sales transactions in real-time. Adopting this method could help the company find the gross profit as the transactions occur, in real-time. This method is quite popular.

Periodic: This method does not record transactions in real-time. It only records the goods at the end of the period by physically counting the stock. The gross profit can also be found out only at the end of the period.

There are four types of cost formulation which helps to calculate the cost of the inventories sold. They are as follows:

Specific Identification: This method is only applicable if the item is non-interchangeable as the method involves tracking of each item right from the purchase to sales by attaching the actual cost. As mentioned in the video by Mr. Martin Turner, this method is becoming easier to adopt.

FIFO: Its full form is First In First Out. This method means that the item purchased first, get sold first.

LIFO: Its full form is Last In First Out. This method means that the item that is purchased last, get sold out first.

Weighted Average: This method means that the product is assigned an average cost of production.

After understanding the basics of the inventory system and its methods for recording, I started to understand the inventory recording system for GR Engineering Services Ltd.

I got the data for the inventories of all three years but even after searching a lot, I couldn’t know the method used by the company to record the transactions. The note under the significant accounting policies, which would usually mention the method used also did not clearly say that. The screenshot of that is as under:

The inventories of the company consist of three parts, namely, consumables, work in progress- oil and maintenance contracts, and work in progress- construction contracts. The consumables remained the same at $ 643,800 for the years 2016 and 2017. In 2018, it plunged by more than half to 293,800. The inventory for work in progress for oil and maintenance contracts increased by nearly 80% to $ 6,887,358 in 2017 from the previous year. In 2018, it got lowered by 25% to $ 5,675,731. The inventory for work in progress for construction contracts has fluctuated a lot in 3 years. In 2016, there was no construction contract inventory, but in 2017, it was reported at $ 12,251,960. Ultimately in 2018, it was valued at mere $ 914,916. The total inventory reported in 2016, 2017, and 2018 was $ 4,409,364, $ 19,783,118 and $ 6,884,447 respectively. The main reason for fluctuations in inventories seems to be the inventory for construction contracts.

Step 8

Below is the screenshot for the registration and installation of the MYOB software.

Below are the screenshots of the training of the two modules of the tutorials.

Below is the screenshot of the last screen for practice on the sample company.

Below are the screenshots for Ezylearn Quiz. It was completed in the due time and I passed the quiz by scoring 76.92 %.

Step 9

I have chosen the company I was allotted, GR Engineering Services Ltd. to complete my step 9. The opening balances, customers, suppliers and the transactions shown in the following journal entries, reports, and screenshots, are purely hypothetical and solely created for testing the knowledge in MYOB. This does not have any relevance in the real world.

Below are the figures for what I entered in as the opening balance:

Assets

Current Assets:

Business Bank Accounts#1 = $ 21,751,300

Trade Debtors = $ 45,648,672

Inventory = $ 6,884,447

Deposits to Suppliers = $ 614,173

Non-Current Assets:

Plant & Equipment = $ 3,878,743

Total Assets = $ 78,777,335 Liabilities

Current Liabilities:

Mastercard #1 = $ 11,651,145

Trade Creditors = $ 15,235,581

Non-Current Liabilities:

Business Loan#1 = $ 400,000

Total Liabilities = $ 27,286,726

Equity Equity = Total Assets – Total Liabilities = $ 78,777,335 - $ 27,286,726 = $ 51,490,609

Shareholder’s Capital = $ 30,445,356Retained Earnings = $ 21,045,253

Following is the screenshot of the suppliers' list:

Following is the screenshot of the customers' list:

Below are the 10 transactions in the form of journal entries, which were carried out in the MYOB.

GR Engineering Services Ltd

Journal Entries

Date Particulars Debit ($) Credit ($)10/08/2019

Trade Debtors (Accounts Receivable) DR

To Sales Income CR

To GST Collected CR

(Sale of Engineering, Procurement, Construction and Commissioning (EPCC) services to Aditya Birla Minerals for Nifty Copper plant, East Pilbara.)

13,000,000

11,818,182

1,181,818

12/08/2019

Trade Debtors (Accounts Receivable) DR

To Sales Income CR

To GST Collected CR

(Sale of Engineering, Procurement, Construction and Commissioning (EPCC) services to Rio Tinto for Moisture Reduction plant, Paraburdoo and payment duly received.)

21,000,000

19,090,909

1,909,091

13/08/2019

Cash at Bank DR

To Trade Debtors CR

(Payment received from Aditya Birla Minerals for the invoice generated on 10/08/2019.)

13,000,000

13,000,000

14/08/2019

Cash at Bank DR

To Trade Debtors CR

(Payment received from Rio Tinto for the invoice generated on 12/08/2019.)

21,000,000

21,000,000

27/08/2019

Warehouse Lease Expense DRGST Paid DR

To Trade Creditors CR

90,9099,091

100,000

(Yearly Lease Expense for Warehouse at Penrith.)

1/09/2019 Equipment Expense DRGST Paid DR

To Trade Creditors CR

(Purchase of Construction Equipment: Excavator: 20 * 50,000 Truck Crane: 14 * 64,000Mining Dump Truck: 1 * 4,000,000, from Downtown Earth Movers)

5,896,000589,600

6,485,600

10/09/2019

Trade Creditors DR

To Business Bank Account CR

(The Warehouse Yearly Lease paid to Blackstone Properties in respect to the Bill generated on 27/08/2019 by Cheque from Business Bank Account.)

100,000

100,000

10/09/2019

Trade Creditors DR

To Business Bank Account CR

(The Multiple Equipment Purchase bill paid to Downtown Earth Movers in respect to the Bill generated on 01/09/2019 by Cheque from Business Bank Account.)

6,485,600

6,485,600

12/09/2019

Retained Earnings DR

To Dividends Payable CR

(Dividends Payout)

21,045,253

21,045,253

12/09/2019

Dividends Payable DR

To Bank Account CR

(Dividends Payout)

21,045,253

21,045,253

ALL Journals

GR Eng Services

All Journals1/08/2019 To 19/09/2019

ID No. Account No. Account Name Debit CreditSJ 10/08/2019 Sale; Aditya Birla Minerals

00000001 1-1310 Trade Debtors $13,000,000.0000000001 4-2000 EPCC Service Income $11,818,181.8200000001 2-1210 GST Collected $1,181,818.18

SJ 12/08/2019 Sale; Rio Tinto00000002 1-1310 Trade Debtors $21,000,000.0000000002 4-2000 EPCC Service Income $19,090,909.0900000002 2-1210 GST Collected $1,909,090.91

CR 13/08/2019 Payment; Aditya Birla MineralsCR000002 1-1110 Business Bank Account #1 $13,000,000.00CR000002 1-1310 Trade Debtors $13,000,000.00

CR 14/08/2019 Payment; Rio TintoCR000003 1-1110 Business Bank Account #1 $21,000,000.00CR000003 1-1310 Trade Debtors $21,000,000.00

PJ 27/08/2019 Purchase; Blackstone Properties00000001 2-1610 Trade Creditors $100,000.0000000001 6-2100 Warehouse Lease Expense $90,909.0900000001 2-1220 GST Paid $9,090.91

PJ 1/09/2019 Purchase; Downtown Earthmovers00000002 2-1610 Trade Creditors $6,485,600.0000000002 6-1700 Equipment Expenses $5,896,000.0000000002 2-1220 GST Paid $589,600.00

CD 10/09/2019 Blackstone Properties Penrith NSW Australia1 1-1110 Business Bank Account #1 $100,000.001 2-1610 Trade Creditors $100,000.00

CD 10/09/2019 Downtown Earthmovers Strathfield NSW Australia2 1-1110 Business Bank Account #1 $6,485,600.002 2-1610 Trade Creditors $6,485,600.00

GJ 19/09/2019GJ000001 1-1110 Business Bank Account #1 $21,045,253.00GJ000001 2-2500 Dividends Payable $21,045,253.00

GJ 19/09/2019GJ000002 3-8000 Retained Earnings $21,045,253.00GJ000002 2-2500 Dividends Payable $21,045,253.00

While creating 10 hypothetical transactions in the journal form, I was worried if I could write the transactions properly. So, I started entering the transactions in MYOB along with writing the journal entries of the transactions, and to my surprise, I found that all of my concepts

from the high school resulted to be right, as all journals report showed quite similar transactions in the report. Exporting the All Journals report was a bit tedious task as particularly for All Journals report, there was no direct way to export to the excel sheet.

Balance Sheet

Generating and exporting the Balance Sheet was an easy task. The Balance Sheet for GR Engineering Services Ltd. saw only some changes in the Balance sheet from the opening Balance, as only 10 transactions occurred during the short period. Firstly, in the assets, only the Business Bank Account# 1 saw a change in the amount as the Income and expense took place during the period. Secondly, there was an increase in the Liabilities as the GST liability was incurred during the period and lastly, the dividend was paid during the period. So, the retained earnings were used for giving the dividends.

Total Equity = Total Assets – Total Liabilities

$ 55,367,537.82 = $ 85,146,482 - $ 29,778,944

Profit and Loss Statement

As the 10 transactions that took place in the period included full payments of the two EPCC services customers, the income was huge in comparison with the expenses. The expenses only included a yearly lease payment and the purchase of multiple construction equipment. Although, if we just consider this period, the Net Profit is outstandingly good for the company and If we look from a yearly perspective, the company has to expect several more expenses in the year ahead.

Statement of Cash Flow

The Statement of Cash Flow shows the exchange of cash that took place in the period. Here, the MYOB generated Cash Flow Statement has taken into account all the monetary transactions including the Operational and the Financial activities. The closing balance of cash also seems to be perfect.

Overall, it was a really good experience learning one of the most popular accounting software, MYOB. At first, after reading the assignment details, I was worried that how I would execute these steps as the software seemed to be very complex but after spending a good amount of time on the tutorials video and practicing it myself, I gained enough confidence to complete step 9. One of the best features of the MYOB was the Help feature, it really helped me.

Some of the best tools that could be used to analyse the financial statement of the company are as follows:

Debt Ratio: Total Liabilities/Total Assets = $29,778,944.18/$85,146,482 = 34.97%

Equity Ratio: Total Equity/Total Assets = $55,367,537.82/$85,146,482 = 65.02%

Debt/ Equity Ratio: Total Liabilities/Total Equity = $29,778,944.18/$55,367,537.82 = 53.78%

Liquidity Ratio: Total Assets/Total Liabilities = $85,146,482/$29,778,944.18= 2.85

Step 10

Depreciation should be considered as an estimate of the amount of future benefit of the asset(s), used until now in order to generate revenue for the corporation. Depreciation is a very broad concept, before studying about depreciation in this unit, I was not aware of the different methods used in depreciating the assets. Depreciation is not only carried out in the business world but also in our personal properties and vehicles. I learned about 3 methods by depreciation can be calculated:

Diminishing Return: When this type of method is applied, the depreciation is calculated on a decreasing basis. This means, the amount is the highest in the first period and then the depreciation value decreases as periods proceeds.

Straight Line: Applying this method means the depreciation will be calculated equally for each period. The amount remains the same in all the periods. The formula used in this method is:

Depreciation amount/useful life

Units of Production: In this method, the depreciation of assets is calculated on the basis of the units produced or the number hours used. The formula for this method is:

Depreciation amount/units produced OR Depreciation amount/operating hours

Now, coming on to the company allotted to me. GR Engineering Services Ltd. is a company which is involved in the construction and consultancy of the mining process units. Below is the screenshot of the company’s Balance sheet and the balance sheet only specifies the amount of the Property, Plant and Equipment, and nothing is specified about depreciation along with it.

The notes 2 and 12 have much to tell about the depreciation method, the useful life of the asset, depreciation amount and its historical costs. The screenshots for note 2 and 12 are as below:

Note 2, Property, Plant, and Equipment

Note 2, Property, Plant, and Equipment (continued)

The company has been using the straight-line method for depreciating its assets and has not changed the method in the past 3 years. This can be considered a good sign as changing the depreciation methods frequently can lead to many accounting regulations and change in calculating the depreciation of the assets as well. GR Engineering Services Ltd. calculates the depreciation on its property, plant, and equipment. The useful life of the company’s property, plant, and equipment are estimated between 2.5-20 years.

The notes about property, plant, and equipment also mentions about the impairment of the property, plant, and equipment. The company states that they review their assets each year in order to find if its original value and the carrying value in the books are the same. If the assets’ carrying value is higher than its original value, the company would have to write down the asset to its original value. This process would be called an impairment of assets. I came across the word “impairment” in the last term. The company that I was assigned had impairment of goodwill in that year and so after understanding the meaning of that word, I got to what an impairment of an asset means to a company.

Below is the screenshot of the Income statement and it shows the expense towards depreciation of assets during the year.

The depreciation expenses for the year ending 2018 and 2017 are shown as $ 1,369,289 and $ 1,392,211 respectively. For the year ending in 2016, the expense for depreciation is $ 1,789,325. This shows that the depreciation expense was quite similar in 2018 and 2017 but a bit higher in 2016. For GR Engineering Services Ltd., the depreciation expense is significant with respect to the total comprehensive income of the company. The percentage weight of depreciation expense with respect to the total income for the year ending 2018, 2017, and 2016 are 12.20, 11.71, and 9.92 respectively.

As no specific amount is given in the financial statements, I have divided the total expense among three items, namely plant, equipment, and vehicles. Below are the 3 made-up journal entries for the transactions that might have been recorded while accounting for depreciation.

Journal

Date Particulars Debit ($) Credit ($)30/07/2018 Depreciation Expense DR

To Accumulated Depreciation- Plant CR (Depreciation expense for the plant in the year)

456,429

456,429

30/07/2018 Depreciation Expense DR

To Accumulated Depreciation- Equipment CR (Depreciation expense for equipment in the year)

456,430

456,430

30/07/2018 Depreciation Expense DR

To Accumulated Depreciation- Vehicles CR (Depreciation expense for vehicles in the year)

456,430

456,430

As accounting for depreciation is a decision taken by the company, there is a scope for manipulation with the figures. Although there may be rules and regulations of AASB to follow while calculating depreciation, the company can do some data manipulation. If the company wants to adopt dishonest means for Tax avoidance, they can account more for depreciation in order to pay less tax.

Step 11

PEER FEEDBACK SHEET: Assignment Steps 7-10

Feedback From: Anuj Umesh Shukla

Feedback To: Sabina Shrestha .

My Comments

Step 7Inventories

It seems that you have read the chapter and understood the concept of inventories well as you have explained the types of methods and the cost formulation as well. Particularly you have explained your company, Immuron Ltd.’s inventory process in a very detailed manner.

Step 8From the many screenshots you have attached, it seems that you have done all the steps of the registration and the setup of your MYOB company.

I saw the screenshots for the tutorial video attempted by you and the last screenshots of the practice company and both of them seem to be meeting the assignment requirements.

It is great to know that you scored 100% on the MYOB quiz.

MYOB set up

MYOB training

MYOB quiz

Step 9Business transactions

All Journals report

Financials and discussion

No feedback

The All journals report for the 10 transactions seems to be generated perfectly

No Feedback

Step 10Depreciation Again, in this step, I feel that you have done quite a good

reading of the chapter and explained about Immuron Ltd.’s asset depreciation in a good manner.

Overall This assignment looks in good shape but I think you are left with step 9 for including the journal entries of your 10 transactions and analysing the financial statements.

Note: Please use this sheet as a guide. There is no need to provide feedback on each step of the Assignment. For example, someone may have little or no draft work completed for one or more of the steps prior to asking for your feedback.

PEER FEEDBACK SHEET: Assignment Steps 7-10

Feedback From: Anuj Umesh Shukla

Feedback To: Samikshya Bhandari .

My Comments

Step 7Inventories In this step, you have correctly explained about your firm’s

inventories. If you can explain more about the perpetual and the periodic methods as well, it would be good.

Step 8I saw the screenshots that you have attached for this step, and I think you have perfectly done the setup of your MYOB account.

The training video screenshot shows that you have watched those videos to understand the working of MYOB but I couldn’t see screenshots for your practice company.

From the screenshot, it seems that you have scored 100% on the quiz, which is a very good score.

MYOB set up

MYOB training

MYOB quiz

Step 9Business transactions

All Journals report

Financials and discussion

No feedback

No Feedback

No Feedback

Step 10Depreciation No Feedback

Overall By looking at steps 7 & 8, it seems that you are doing good with your assignment. By completing the rest of the steps, your assignment will be ready for submission.

Note: Please use this sheet as a guide. There is no need to provide feedback on each step of the Assignment. For example, someone may have little or no draft work completed for one or more of the steps prior to asking for your feedback.