“Integrity is doing the right thing, even when nobody is watching.

NANYANG TECHNOLOGICAL UNIVERSITY

NANYANG BUSINESS SCHOOL
AC1101 – ACCOUNTING I
SEMESTER 2, 2017/2018

Lesson 2 for week beginning 22 January 2018

Topics:
1. Objective of financial reporting
2. Elements of financial statements
3. Types of financial statements
4. Linkages among the financial statements
5. Types of business activities
6. The accounting equations
7. Impact of business transactions on the accounting equations

Learning objectives:
Refer to the course outline

Readings:
1. STH Chapter 1 and 2 (Part A) – in the customised textbook
2. The Conceptual Framework for Financial Reporting – Chapters 1 and 4
3. Exposure Draft Conceptual Framework for Financial Reporting, 28 May 2015 - para 3.11 to 3.25
4. SingPost Annual Report for the Financial Year ended 31 March 2015 – as illustrated in the online
lesson 2

Textbook:
STH: Spiceland J. D., Thomas W., Herrmann D. (2016), “Financial Accounting”, 4th edition, McGraw-Hill.

Connect:
There is an online self-practice assignment for lesson 2 in Connect. Instructions will be made to students
separately on how to login to Connect.

Discussion Questions

1. What are the asset recognition criteria spelt out in the Conceptual Framework for Financial
Reporting? Explain why the following items are or are not recognised as assets:
• Internally generated goodwill
• Research costs
• Staff training and development costs

2. STH Problem 1-4B – refer to page 107 of the customised textbook

17S2 AC1101 Lesson 2 Discussion Questions \ Chan Ai Lin 1

 “Integrity is doing the right thing, even when nobody is watching.”

NANYANG TECHNOLOGICAL UNIVERSITY

NANYANG BUSINESS SCHOOL
AC1101 – ACCOUNTING I
SEMESTER 2, 2017/2018

3. The following balances were taken from the books of Faith Pte Ltd, whose financial year ends on
30 June.

$
Assets as at 30 June 2012 661,000
Assets as at 1 July 2013 736,000
Assets as at 30 June 2014 841,000
Dividends declared and paid on 31 July 2012 20,000
Dividends declared and paid on 31 August 2014 50,000
Issuance of new shares on 28 October 2012 20,000
Issuance of new shares on 31 August 2013 30,000
Liabilities as at 1 July 2012 375,000
Net income reported for the financial year ended 30 June 2012 25,000
Net loss reported for the financial year ended 30 June 2013 56,000
Net income reported for the financial year ended 30 June 2014 150,000
Retained earnings as at 1 July 2014 110,000

Calculate the liabilities as at 30 June 2013.

4. Below are the transactions for Super Car Washer Pte Ltd for April, the first month of operations.

April 1 Issue shares in exchange for cash of $30,000.

April 2 Obtain a loan of $20,000 from the bank.
April 5 Purchase car-washing equipment for $40,000, 50% paid by cash and 50% on 20-
day credit.
April 10 Purchase cleaning supplies of $4,000 on credit.
April 12 Provide car-washing services of $5,000 on credit.
April 19 Pay for advertising in a local newspaper, costing $500.
April 20 Collect $5,000 from customers for car washing services provided on April 12.
April 25 Provide car-washing services of $7,000 for cash.
April 25 Paid $20,000 to supplier of car washing equipment (refer April 5 transaction)
April 28 Paid April’s rental, $5,000.
April 29 Pay employees $1,500 for work performed in April.
April 30 An utility bill of $1,200 for April is received.
April 30 Pay dividends of $700 to shareholders.

Required:
For each activity, indicate the dollar impact to assets, liabilities and shareholders’ equity for the
firm and also the accounts that will be affected under assets, liabilities and shareholders’ equity
for the firm.

17S2 AC1101 Lesson 2 Discussion Questions \ Chan Ai Lin 2

 “Integrity is doing the right thing, even when nobody is watching.”

NANYANG TECHNOLOGICAL UNIVERSITY

NANYANG BUSINESS SCHOOL
AC1101 – ACCOUNTING I
SEMESTER 2, 2017/2018

Self-Practice Questions

5. STH Problem 2-5A – refer to page 155 of the customised textbook

Requirement 2 only.
Please also identify the accounts that will be affected under assets, liabilities and shareholders’
equity.

6. The following balances were taken from the books of Not-So-Easi Pte Ltd, whose financial year
ends on 31 July:

$
Assets as at 1 August 2012 58,000
Assets as at 31 July 2013 63,000
Assets as at 1 August 2014 75,000
Dividends paid on 30 May 2013 2,000
Dividends paid on 28 February 2014 6,000
Expenses reported during the financial year ended 31 July 2014 63,000
New shares issued on 1 January 2013 4,000
New shares issued on 15 May 2014 2,000
Revenue reported during the financial year ended 31 July 2014 71,000
Liabilities as at 31 July 2012 33,000
Liabilities as at 1 August 2014 38,000
Retained earnings as at 1 August 2012 5,000

Calculate the retained earnings as at 31 July 2013. (Key answer: $9,000)

7. The following balances were taken from the books of Faith Pte Ltd, whose financial year ends on
30 September.

$
Assets as at 30 September 2012 1,430,000
Assets as at 1 October 2013 1,550,000
Liabilities as at 30 September 2013 720,000
Retained earnings as at 1 October 2011 150,000
Issuance of new shares on 28 February 2012 25,000
Issuance of new shares on 31 March 2013 30,000
Dividends declared and paid on 31 July 2012 45,000
Dividends declared and paid on 31 December 2012 60,000
Net income reported for the financial year ended 30 Sep 2012 100,000
Net income reported for the financial year ended 30 Sep 2013 130,000

Calculate the liabilities as at 30 September 2012. (Key answer: $700,000)

Note: Questions 3, 6 and 7 are past quiz questions.

17S2 AC1101 Lesson 2 Discussion Questions \ Chan Ai Lin 3