Retail operations and retail inventory ‘Splash Out The Back’ began business on 1 November 2019. The business has been set up as a partnership between Mr. and Mrs. Fisher. It operates an online store, selling inflatable swimming pools to the public, for use in back yards. The business began by selling one particular model of an inflatable swimming pool but will look to expand the product lines that it sells within the next year. The business is registered for GST. The following transactions occurred during November 2019:
Date Details
1 Nov Mr. and Mrs. Fisher deposited $20,000 into the business bank account ($10,000 each).
1 Nov ‘Splash Out The Back’ rented a small warehouse for the business, to store inventory that is purchased. The warehouse rent costs $330 per month (including GST). ‘Splash Out The Back’ pays the landlord $990 from the bank account, for rent for November, December, and January.
8 Nov ‘Splash Out The Back’ purchased 30 of the inflatable swimming pools on account for $88 per pool, including GST, from the pool manufacturer, Intex Pools Ltd. Intex Pools Ltd also charged a delivery fee on the invoice of $55, including GST (to deliver the swimming pools to ‘Splash Out The Back’). The invoice is due for payment on 20 November.
15 Nov ‘Splash Out The Back’ paid the invoice from Intex Pools Ltd (for purchases made on 8 November) from the business bank account.
16 Nov ‘Splash Out The Back’ sold 12 of the swimming pools via its online store, at $165 each (including GST). All of the customers paid by Paypal and the money was received in the business bank account by the end of the day. Note: ‘Splash Out The Back’ does not pay any PayPal fees when customers pay by PayPal.
20 Nov One of the customers who purchased a swimming pool on 16 November returned their swimming pool for a refund. The swimming pool was returned in an original, brand new condition (unopened). The customer paid for the freight to return the swimming pool, and ‘Splash Out The Back’ refunded the customer $165 from the business bank account.
22 Nov ‘Splash Out The Back’ purchased 40 of the inflatable swimming pools on account for $99 per pool, including GST, from the pool manufacturer, Intex Pools Ltd. Intex Pools Ltd also charged a delivery fee on the invoice of $55, including GST, to deliver the swimming pools to ‘Splash Out The Back’. The invoice is due for payment on 5 December.
23 Nov ‘Splash Out The Back’ had a 24-hour sale, and sold 34 of the swimming pools via its online store, at $143 each (including GST). All of the customers paid by Paypal and the money was received in the business bank account by the end of the day.
25 Nov ‘Splash Out The Back’ was contacted by a primary school. The primary school wanted to purchase 10 of the inflatable swimming pools for their school water fun day. ‘Splash Out The Back’ agreed to sell 10 of the swimming pools to the primary school for $154 each (including GST). The sale was made on credit terms of 2/10, n/30.
27 Nov ‘Splash Out The Back’ received the money in the business bank account from the primary school that purchased swimming pools on 25 November. The amount received was the invoiced amount, less the sales discount.
30 Nov Mrs. Fisher accidentally damaged one of the swimming pools in the warehouse, and the swimming pool needs to be written off.
30 Nov ‘Splash Out The Back’ received an invoice from Telstra (for telephone and internet used by the business), with an amount payable of $88 (including GST). The due date for payment is 16 December.
30 Nov ‘Splash Out The Back’ received an invoice from Australia Post for postage costs re. delivering swimming pools to customers. Australia Post charges $9.90 postage per swimming pool delivered (including GST). The invoice is due for payment on 20 December.
Mr & Mrs. Fisher don’t have any experience keeping inventory and accounting records. They have come to you for assistance.

Required:
i. Prepare a business report*for ‘Splash Out The Back’ to help the owners understand the different inventory accounting systems (periodic and perpetual), and costing methods (specific unit cost; first-in-first-out (FIFO); last-in-first-out (LIFO); and average cost methods). In your report, also discuss any advantages and disadvantages of these different systems and methods. Given your knowledge of the business and your knowledge of the regulatory requirements that will apply to ‘Splash Out The Back’, include a recommendation on the inventory system and costing method/s that ‘Splash Out The Back’ should consider adopting. (Word guide: 1,000 words) (6 marks)

ii. Prepare Excel worksheets for the swimming pools for November using the perpetual inventory system and the FIFO, LIFO, and average-cost methods. In your spreadsheets, keep track of the number of swimming pools purchased, swimming pools sold, swimming pools on hand, cost of goods sold, and gross profit made. (3 marks)

iii. Now assume that ‘Splash Out The Back’ has adopted the perpetual inventory system and the FIFO costing method. Prepare journal entries (including any adjusting entries) for all of the business’s transactions for November. Include dates, references, and narrations. (4.5 marks)

iv. Prepare T-accounts in an Excel spreadsheet, and post all of the above journal entries
to the T-accounts. Include dates and references for each entry. Total all of the T accounts to determine their balances at the end of November 2019. (1 mark)

v. Prepare the ‘Adjusted Trial Balance’ in an Excel spreadsheet as of 30 November 2019. Use formulas to generate all of the figures in the ‘Adjusted Trial Balance’ from the balances in the T-Accounts. (1 mark)

vi. Prepare the income statement, balance sheet, and statement of changes in equity in Excel. Use formulas to generate all of the figures in the financial statement reports from the ‘Adjusted Trial Balance’. (3 marks)

vii. Assume that ‘Splash Out The Back’ has a year-end date of 30 November. Prepare the closing entries as at 30 November 2019. (1.5 marks)

Answer rating: 100% (QA)

Solution 1 Balance sheet as on 30th November 2019 Balance Sheet as on 30th November 2019 Liability Amount Assets Amount Partners Capital Mr Fisher 10945 Mrs Fisher 10945 Current Liabilities Current As... View the full answer