Assignment Instructions The newly appointed accountant of a start-up company Pioneer Limited, which has received funding from
Question:
Assignment Instructions
The newly appointed accountant of a start-up company Pioneer Limited, which has received funding from two sharks jointly in the Shark Tank against the issue of debentures, has prepared the following Trial Balance from the details compiled by him for two years as follows:
Trial balance for the year ended Mar 31,2022
Account Title | Head of Account | Debit Amount (₹) | Credit Amount (₹) |
Share Capital | Non-current liability | 5,00,000 |
|
Bank Loan | Non-current liability |
| 1,00,000 |
Debentures | Non-current liability | 1,00,000 |
|
Trade payable | Current liability |
| 50,000 |
Outstanding Rent | Current liability |
| 5,000 |
Proposed dividend | Current liability |
| 80,000 |
Equipment | Non-current tangible asset | 2,00,000 |
|
Furniture | Non-current tangible asset | 3,00,000 |
|
Patents | Non-current tangible asset | 1,00,000 |
|
Investment by Sharks | Current investment |
| 1,00,000 |
Inventories as on 31.03.2022 | Inventories | 50,000 |
|
Trade receivables | Current asset | 80,000 |
|
Cash balance | Current asset | 5,000 |
|
Bank balance | Current asset | 2,00,000 |
|
Revenue | Indirect income |
| 3,60,000 |
Purchases | Direct expense | 1,00,000 |
|
Salaries | Direct expense | 20,000 |
|
Rent of building | Indirect expense | 10,000 |
|
Depreciation on tangible assets | Direct expense | 50,000 |
|
Dividend expense during the year | Indirect expense | 30,000 |
|
|
| 17,45,000 | 6,95,000 |
Note: There is no opening stock for the company.
Now, the accountant is confused as regards two things:
- Whether the classification of "Head of Account" is correct?
Whether the classification under "debit" or "credit" is correct? {Apply three golden rules of debit and credit here: (1) Debit what comes in, credit what goes out. (2) Debit the receiver, credit the giver. And (3) Debit all expenses, credit all income.}
Task 1:
Give the correct classification for the above accounts mentioned in the Trial balance above.
Also, by making corrections to what will be correctly debited or credited to the Trial Balance, prepare corrected Trial Balance for the year ended 31 March 2022.
Task 2:
Prepare Balance Sheet for Pioneer Limited as of 31 March 2022.
Task 3:
Prepare Profit and Loss Account for the year ended 31 March 2022.
Task 4:
Pioneer Limited is unable to assess the cash and liquidity position of the company based on the above Profit and Loss Account and Balance Sheet. You are required to help the management by preparing the Cash flow Statement for the year ended 31 March 2022.
The following additional information is made available for you:
During the year, equipment costing ₹ 80,000 was purchased.
Loss on Sale of Furniture amounted to ₹ 5,000.
Opening balances as on 01.04.2021 are as follows:
Patent = ₹1,05,000
Equipment = ₹1,70,000
Furniture = ₹3,30,000
Investments by Sharks =₹0
Trade receivable = ₹40,000
Cash Balance = ₹1,000
Bank Balance= ₹1,00,000
Share capital = ₹3,00,000
Reserves and Surplus =₹50,000
Bank Loan = ₹50,000
Debentures = ₹0
Trade payables = ₹55,000
Outstanding Rent = ₹3,000
Proposed dividend= ₹40,000
Task 5:
The management of the company is asking you to analyse the performance and Cash flow of Pioneer Limited for the year ended 31 March 2022, making specific reference to any concerns or expectations regarding future periods, with the help of various ratios to support your analysis. Following ratios are already calculated for you to analyse the performance of the company:
Gross profit margin: 86.11%
Net-profit margin: 55.56%
Debt equity Ratio: 0.29 times
Return on capital employed: 22.22%
Inventory turnover period: 182.5 days
Receivable's collection period: 81.1 days
Task 6:
The auditor of the company, M/s JBL Co. and Associates, is planning to conduct internal control risk audit for the year ended 31 March 2022 on the request of the new investors (sharks) to ensure there are no shortcomings in the working and management of the company. You are required to identify and describe any five potential risks related to the internal control of the company and what should be the auditor's response to address those risks.
Fundamental Accounting
ISBN: 9781485112112
7th Edition
Authors: David Flynn, Carolina Koornhof, Ronald Arendse, Anna C. E. Coetzee, Edwardo Muriro, Louise Christel Posthumus, Louise Mancy Smit