Michael Angelo Case Study - Business Report - Assignment Help

Assignment Task

Case Study of Michael Angelo

Michael Angelo is the sole proprietor of Michael’s Mobile Phones a retail business registered for GST that sells mobile phones. It is a continuing business with opening balances in its permanent accounts on the balance sheet. The business purchases and sells inventory. It also has some other income in the form of interest received from an investment being a term deposit with the bank. The business uses MS Excel spreadsheet software to record transactions, manage accounts and prepare the financial statements. 
As you are the accountant for Michael’s business, you are required to prepare a business report. The report will summarise the financial performance and position of the business by identifying the profit (or loss) and the value of the assets, liabilities and owner’s equity at the end of the period 31 July 2019. Explain whether you think the business is in a good financial position. Michael has asked you to list some of the external users of his financial statements and explain what information in the financial statements would be of interest to them and why.  
In addition, you should address TWO (2) of the following considerations: 
1)  Accounting can be either on a cash-basis or an accrual-basis. Explain the difference between the two methods. Which one of the two methods would be most advantageous to Michael’s business and why? 
2) Why are accounts categorised on the balance sheet as either current or non-current? Explain the difference between these categories and include ONE (1) example of each from the balance sheet you have prepared for Michael’s Business.
3)  Identify and explain the TWO (2) main types of inventory systems. Michael’s business has adopted the Perpetual Inventory system. In your opinion, is this the most appropriate system based on your knowledge of the business? Explain your answer. 
4) Explain your thoughts on why Michael's business accepts sales from customers on credit. What are the advantages and disadvantages of extending credit? Explain the purpose of the Provision for Bad Debts account. Why do you think the business has the balance of this account as 20% of the Accounts receivable balance at 31 July 2019? 
5) The three most commonly used methods a business would adopt to value their inventory are: FIFO (first-in, first-out), LIFO (last-in, first-out) and Average costing. Which ONE (1) of the three methods has Michael’s business adopted and give an explanation of that method. In your opinion, is this the most appropriate method based on your knowledge of the business? Explain why Michael’s business should do periodical stocktakes of the items in inventory. 

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