Question

Let it Snow Manual Practice Set Part 4 (A)

The adjusted trial balance for Let it Snow is shown below.

Let it Snow Adjusted Trial Balance as at 30 June 20XX
Account Number	Account	Debit	Credit
100	Bank Account	7,252.42
105	Petty Cash	200.00
110	Accounts Receivable	7,543.00
120	Prepaid Insurance
130	Prepaid Rates and Taxes
140	GST Paid (Outlays)	2,492.33
160	Buildings and Improvements (Cost)	350,000.00
161	Accumulated Depreciation – Bldgs and Improvements		44,479.00
170	Hire Equipment (Cost)	110,937.73
171	Accumulated Depreciation – Hire Equipment		68,964.00
180	Motor Vehicles (Cost)	29,900.00
181	Accumulated Depreciation – Motor Vehicles		9,468.00
190	Store Equipment (Cost)	14,700.00
191	Accumulated Depreciation – Store Equipment		6,799.00
200	Accounts Payable		5,337.00
210	GST Collected		6,737.73
220	PAYG Withholding Payable		1,660.00
230	Superannuation Payable		414.00
240	Wages and Salaries Payable		80.00
280	Bank Loan		219,191.67
310	Capital		151,156.00
315	Drawings	39,042.00
400	Hire Service Income		127,226.19
410	Lesson Income		30,810.00
420	Discounts Received		515.69
430	Freight Collected		85.00
440	Profit on Sale of PPE		276.82
600	Advertising	2,150.00
605	Bank Charges	127.10
610	Cleaning	900.00
615	Depreciation	38,658.00
620	Discounts Given	309.60
625	Electricity	3,480.50
630	Freight Expense	1,111.44
635	Insurance	4,575.00
640	Interest Expense	15,194.47
645	Motor Vehicle Expenses	2,610.00
650	Office Supplies	118.80
655	Printing and Postage	165.46
660	Rates and Taxes	1,977.00
665	Repairs and Maintenance	995.00
670	Ski Instruction Charges	14,921.82
675	Staff Amenities	260.83
680	Superannuation	1,818.00
685	Telephone	1,479.60
690	Wages and Salaries	20,280.00
		673,200.10	673,200.10

Prepare a business report for the owner, Kurt Rendell, the owner of ‘Let it Snow’. You should address the following in your report: ? Summary of the financial reports prepared for the current financial year. ? Using your answers in part (a) and the information provided below, conduct appropriate ratio analysis for the current year and report on the profitability, liquidity and financial stability for Let it Snow:   
Figures at 1 July 20WX Accounts Receivable $8,500 Total Assets $423,128 Refer to the balance sheet for opening equity Round all monetary values to the nearest dollar in your calculations.

The following is a list of the ratio results for comparative purposes for the previous year’s performance: ROA 9% ROI 27% Profit margin 28.70% Current ratio 0.97:1 Receivables turnover 15.87 times Debt ratio 57% Asset turnover 0.37 times

? Each ski season has a finite timeframe and is dependent on the weather. While the ski resort has the ability to manufacture snow when the depth is low, it is limited to the main slopes. The unpredictability of the season has a significant impact on the success of Let it Snow each season. Simon Woolacott, owner of Crystal Peak Hotel, is keen to change operations from a seasonal to year-round business. Recently, Simon was approached by a mountain bike club in the city to host a weekend on the mountain staying at his ski lodge. Both Simon and Kurt are keen mountain bike riders, spending many weekends in the warmer months riding trails around the mountain and are very familiar with the level of difficulty and the physical fitness necessary to ride particular tracks.
Simon has approached Kurt with a business proposal that could change both of their businesses from seasonal to year-round ventures. The idea is to open an adventure tour business providing an outdoor experience offering hiking, camping and mountain bike riding in the warmer months. Simon can use his lodge facilities to provide food and accommodation. Kurt has the knowledge and expertise to run and coordinate activities. The men would like to limit the group size to a maximum of 25 participants. Kurt knows from experience, not only are smaller groups easier to control and cater for contingencies, but the participants also find engaging in activities as a smaller group more enjoyable.
CO5117 – Introduction to Accounting Assignment, 2018
3

Initially, participants would provide their own bikes / equipment, but Simon envisions, with their combined facilities, they could appeal to high schools and offer a component to existing outdoor education programs and mountain bike adventure clubs. This would require the purchase of mountain bikes and camping equipment. Kurt likes the idea and thinks they could also offer corporate training with team bonding activities such as scavenger hikes and could perhaps create an obstacle course on Simon’s land behind the lodge. Overwhelmed with ideas but not sure where to start Kurt has approached you for advice. 1. If the adventure tour business goes ahead, recommend which business structure would be appropriate. Should Simon and Kurt continue to operate as sole traders? Alternatively, should they form a partnership or a company? Discuss. 2. What other formalities would Simon and Kurt need to undertake before they can commence the adventure tour business? 3. What recommendations do you have to promote the new adventure tour business?

Answer 1

a) Financial Statements

Let It Snow
Income Statement
Revenue
Hire service income	127226.2
Lesson income	30810
Freight collected	85	158121.2
Other Incomes
Discount received	515.69
Profit on sale of PPE	276.82	792.51
TOTAL INCOME		158913.7
Expenses
Advertisng	2150
Bank Charges	127.1
Cleaning	900
Depreciation	38658
Discount given	309.6
Electricity	3480.5
Freight expenses	1111.44
Insurance	4575
Interest expenses	15194.47
Motor vehicle expenses	2610
Office supplies	118.8
Printing and stationary	165.46
Rates and Taxes	1977
Repairs and maintenance	995
Staff instruction charges	14921.82
staff amenities	260.83
Superannuation	1818
Telephone	1479.6
Wages ans Salaries	20280
TOTAL EXPENSES		111132.6
Net Profit		47781

Note: as the proper information about the nature of busines is not available, their for classifiaction of expenses is not made into operating and other expenses. Same classification of income into revenue and other incomes is made from imformation to calculate different ratios that are based on revenue income of the business.

Let It Snow
Balance Sheet
Assets
Current Assets
Bank	7252.42
Petty Cash	200
Accounts Receivables	7543
GST Paid (Outlays)	2492.33	17487.75
Noncurrent Assets
Building	350000
Less: Accumulated Deprecition - Building	-44479
Hire Euipment	110937.7
Less: Accumulated Depreciation - Equipment	-68964
Motor Vehicle	29900
Less: Accumulated Depreciation - Motor Vehicle	-9468
Store Equipments	14700
Less: Accumulated Depreciation - Store Equipment	-6799	375827.7
TOTAL ASSETS		393315.5
LIABILITIES AND EQUITY
Current Liabilities
Accounts Payable	5337
GST Collected	6737.73
PAYG Withholding Payable	1660
Superannuation Payable	414
Wages and Salaries Payable	80	14228.73
Noncurrent Liabilities
Bank Loan	219191.7	219191.7
Owner's Equity
Capital	151156
Less Drawings	-39042
Retained Earnings	47781	159895
TOTAL LIABILITIES AND EQUITY		393315.4

b) Financial Analysis

Let It Snow
Financial Analysis
Return on Assets
Net Income	47781
Total Assest	393315	12.15
Return on Investment
Net Income	47781
Shareholders Equity (opening capital)	151156	31.61
Profit Margin
Net Income	47781
sales	158121	30.22
Current ratio
Current Assets	17487.75
Current liabilities	14228.73	1.23
Receivables Turnover
Credit Sales	158121
Accounts Receivables	7543	20.96
Times Debt Ratio
Total Liabilities	233420
Total Assest	393315	59.35
Asset Turnover Ratio
Sales	158121
Total Assets	393315	0.40