Académique Documents
Professionnel Documents
Culture Documents
Self-Study Solutions
Week 9
ACCT5001 S1 2010
Self-Study Solutions
Week 9
Ch.8: Q3, Q5; E8.1, E8.4; PSA8.2, PSA8.3, PSA8.7, & PSA8.10
3.
The effects of the three methods on annual depreciation expense are: (a) (b) (c) Straight-line constant amount Diminishing-balance decreasing amount Units-of-production varying amount. 1 January 2008 Equipment Cost Estimated Residual $90,000 10,000 $80,000 Balance date 30 June
5.
In a sale of PPE assets, the carrying (book) value of the asset is compared to the proceeds received from the sale. If the proceeds of the sale exceed the carrying value of the PPE asset, a gain on disposal occurs. If the proceeds of the sale are less than the carrying value of the PPE asset sold, a loss on disposal occurs.
Depreciable Amount
Straight line depreciation rate EXERCISE 8.1 Zhang Ltd (a) Depreciation expense for fiscal year 2008 $80,000 x 20% x 6 months (a) The following points explain the application of the cost principle in determining the acquisition of PPE assets.
$8,000
1. Under the cost principle, the acquisition cost for a PPE asset includes all expenditures necessary to acquire the asset and make it ready for its intended use. 2. For example, the cost of factory machinery includes the purchase price, freight costs paid by the purchaser, insurance costs during transit, and installation costs. 3. Cost is the fair value at acquisition date of all assets given up or liabilities undertaken, plus any incidental costs. 4. Fair value is the amount for which an asset could be exchanged between knowledgeable willing parties in an arms-length transaction. (b) 1. 2. 3. 4. Land Factory Machinery. Delivery Truck Land Improvements 5. 6. 7. 8. Delivery truck Factory Machinery Prepaid Insurance Motor Vehicle Expense
(b)
(c)
1 July 2010 addition $4,000. Therefore the carrying amount is now $54,000 which will also be the depreciable amount as the expected residual is nil.
Depreciation rate is 100% 4 years = 25% Depreciation expense 2011 is $54,000 x 25% = $13,500.
2/05/2010
2/05/2010
ACCT5001 S1 2010
Self-Study Solutions
Week 9
ACCT5001 S1 2010
Self-Study Solutions
Week 9
PROBLEM SET A 8.2 2011 Balance date is 30 June Pouncer Ltd (a) 2010 $ Aug 1 Land Cash (Purchase of Land) (b) Oct 1 Depreciation Expense Accumulated Depn Equipment ($675,000 x 1/10 x 3/12) 16,875 16,875 2011 June 30 Depreciation Expense Accumulated Depn Buildings Oct 1 Cash Accumulated Depn Equipment Equipment Gain on Disposal 350,000 455,625 675,000 130,625 June 30 Depreciation Expense Accumulated Depreciation - Equipment 4,735,500 4,735,500 ($28,500,000 x 1/40) 712,500 712,500 2,630,000 2,630,000 $ June 30 Jan 1 Equipment Cash (Purchase of Equipment) 1,000,000 1,000,000
470,000 470,000
$46,855,000* x 1/10 Cost (1/1/04) Accum. Depn Equipment [($675,000 x 1/10 x 6.75yrs)] WDV value Cash proceeds Gain on disposal 219,375 350,000 $130,625 $675,000 $455,625 *($48,000,000 - $675,000 - $470,000) $1,000,000 x 1/10 x 6/12
Dec 1
2/05/2010
2/05/2010
ACCT5001 S1 2010
Self-Study Solutions
Week 9
ACCT5001 S1 2010
Week 9
(c) Pouncer Ltd Partial Statement of financial position as at 30 June 2011 30/06/11 Bal. c/d
Bal b/d
12,812,500
Equipment Property, plant and equipment* Land Buildings Less: Accumulated depreciation buildings Equipment Less: Accumulated depreciation equip. Total property, plant and equipment $28,500,000 12,812,500 47,855,000 8,826,750 39,028,250 $61,045,750 01/10/10 30/06/11 30/06/11 * See T-accounts which follow. Accumulated Depreciation - Equipment Equipment, etc. Equipment Bal. c/d 455,625 30/06/10 470,000 1/10/10 8,826,750 30/06/11 9,752,375 31/12/11 Note that in the external reports the total of Property, plant and equipment would be a one line item in the statement of financial position and the detailed breakdown above would be disclosed in the notes to the financial statements. Bal. b/d Balance Depn Exp. Depn Exp. 5,000,000 16,875 4,735,500 9,752,375 8,826,750 15,687,500 30/06/11 Bal. b/d $6,330,000 30/06/10 01/01/11 Balance Cash 48,000,000 1/10/10 1,000,000 30/6/10 - 30/06/11 49,000,000 47,855,000 Cash, etc. Acc. Depr. Bal. c/d 675,000 470,000 47,855,000 49,000,000
Land 30/06/10 1/8/10 Balance Cash 4,000,000 1/12/10 2,630,000 31/12/10 6,630,000 31/12/10 Bal. b/d 6,330,000 Cash Bal. c/d 300,000 6,330,000 6,630,000
2/05/2010
2/05/2010
Self-Study Solutions
Week 9
Self-Study Solutions
Week 9
Donut Ltd 2010 Jan 1 Accumulated Depn Machinery Machinery (scrapping machinery fully deprd 31/12/09) June 30 Depreciation Expense Accumulated Depn Computer (update depreciation $49,000 x 1/7x 6/12) June 30 Cash Accumulated Depreciation Computer Gain on Disposal Computer (Sale of computer ) Calculation of disposal Cost (1/1/07) Accum. Depn Equipment [($49,000 x 1/7 x 3.5yrs)] Carrying value Cash proceeds Gain on disposal 24,500 31,000 $6,500 2009 2010 2011 $49,000 24,500 2009 2010 2011 31,000 24,500 6,500 49,000 3,500 3,500 2008 2009 2010 2011 $ 52,000 52,000 $ Balance date 31 December (a) Year
Erin Ltd
Calculation
MACHINE 1 $128,000 X 10% = $12,800 $128,000 X 10% = $12,800 $128,000 X 10% = $12,800 $128,000 X 10% = $12,800 $12,800 25,600 38,400 51,200
MACHINE 2 $96,000 x 18.75% = $18,000 $78,000 x 18.75% = $14,625 $63,375 x 18.75% = 11,883 $18,000 32,625 44,508
MACHINE 3 500 X $2.00a = $1,000 3,500 x $2.00 = $7,000 4,500 x $2.00 = $9,000 $1,000 8,000 17,000
Dec 31
Depreciation Truck Accumulated Depn Truck ( [ ($27,000- $3,000) x 1/8] update deprn)
Dec 31
Accumulated Depn Truck (5yrs) Loss on Disposal Truck (scrapping of truck after 5 years)
Depreciation Calculation
MACHINE 2 (1) 2009 $96,000 x 18.75% x 9/12 = $13,500 $82,500 x 18.75% = $15,469 $13,500
(2) 2010
$28,969
2/05/2010
2/05/2010
ACCT5001 S1 2010
Self-Study Solutions
Week 9
(a) Barnaby Ltd (1) Average age of PPE assets Jane Ltd
(2)
(3)
(b)
Based on the asset turnover ratio, Jane Ltd is more effective in using assets to generate sales. Its asset turnover ratio is 50% higher than Barnaby Ltds ratio. Two factors that inhibit comparing the two companies are the wide differences in average useful life and age of the PPE assets. It is also not clear if both companies follow the same valuation model i.e., cost or revaluation.
2/05/2010