Let it Snow Part (a) – Online accounting practice set This practice set provides a real-world…

Let it Snow

Part (a) – Online accounting practice set

This practice set provides a real-world experience in recording and posting a variety of business transactions common to a small service business, so that students gain an understanding of the flow of data in an accounting system. While businesses typically use integrated computerised accounting systems such as MYOB, Quickbooks or Xero, knowledge of a manual accounting system, provides students with an appreciation of how the accounting process is completed in a computerised accounting system. This assignment will simulate a professional client relationship where you will complete the accounting records from initial transactions to the preparation of financial reports for the owner, Kurt Rendell.

Let it Snow is a small service business that has operated successfully for some years, hiring snow sports equipment and clothing, and arranging skiing lessons. The structure of the business is that of a sole trader, with the owner being Kurt Rendell. The owner runs the business and his wife maintains the accounting records. The business is seasonal, and during the busy season he employs two casual sales assistants who are paid monthly, based on an hourly rate. Tax is deducted from the employee's wages (PAYG withholding tax) and remitted to the Australian Taxation Office (ATO) on a quarterly basis. The business is registered with the ATO for the goods and services tax (GST), and its Australian Business Number (ABN) is 26 008 672 179. It reports and pays amounts owing for GST and PAYG withholding quarterly via the business activity statement (BAS). The business has elected to use the accrual basis of accounting for both accounting and GST purposes.

Required:

Prepare the recording of transactions for the month of June for Let it Snow. This will require analysing, classifying and recording transactions, for the month of June, in the accounting information system using specialised journals and control accounts, posting to the general and subsidiary ledgers and preparation of financial reports.

Part (b): Report to owner, Kurt Rendell.

An important component of accounting services in a client relationship is not only the preparation of the financial reports for the business, but the dissemination of a performance report of the entity as well as the provision of business advice to improve future performance.

Required:

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.

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?