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11/22/2014
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David Luke
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Q 1. National Traders bought a piece of land in order to build a factory for $4,00,000 on 1
January 20x1. There was on old factory on the site which cost $17,200 to demolish although
some materials were salvaged and sold for $7,600. Architects fees were $17,400 plus $800
for civic charges. The building contractor was paid $19,00,000 as the contract price but
$24,000 paid for leveling the site before building commenced. After the building was
completed, a landscape gardener was paid $12,400 and a car park was constructed at a
cost of $16,000. Outside lighting cost $6,400 and a few weeks after the building was
occupied it was decide to build a wall at the rear of the plot for $11,600. Interim payments
were made during construction to the builder. Determine the cost of the land and cost of the
building.
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Solution:
National Traders
Calculation of cost of land and building
Land
Amount paid
Add: Cost of demolishing Factory
Less: Materials salvaged and sold
$
17,200
7,600
_________
Cost of Building
Architects fees
Civic charges
Contract price
Leavelling the land
Payment to landscape gardener
Construction of car park
Lighting
Wall construction
$
4,00,000
9,600
______
4,09,600
$
17,400
800
19,00,000
24,000
12,000
16,000
6,400
11,600
_________________________________________________________________________
Total
19,88,600
Q 2. A firm acquired an asset on 1 January 20*01 at a cost of $30,000. The asset has 10
year life at the end of which it is expected to realize $2,000. What would be the depreciation
for the first three years: (a) on a straight line basis? (b) on a diminishing balance basis?
Solution:
Original Cost
30,000
2,000
___________
28,000
28,000/10 = $ 2,800
2,800x3=$8,400
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10
17,330
4,160
_________
13,170
Q 3. John Mike purchased a machine by cheque for $28,000 on 1 January 1995. Its
probable working life was estimated at eight years and its scrap value at the end of
probable working life was estimated at eight years and its scrap value at the end of
that time $ 4,000. It was decided to write off depreciation by equal annual instalments over
the years .Show the machinery account for the first four years
Solution:
John Mike
Machinery
1 January 1995
Bank account
Account
31 December 1995
28,000
Depreciation account
3,000
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28,000
Balance c/d
25,000
28,000
1 January 1996
Balance b/d
25,000
25,000
31 December 1996
3,000
Depreciation account
22,000
Balance c/d
22,000
1 January 1997
Balance b/d
19,000
1 January 1999
3,000
31 December 1997
22,000
Depreciation account
Balance c/d
31 December 1998
19,000
Balance b/d
25,000
19,000
22,000
3,000
16,000
Deprecation account
Balance c/d
19,000
16,000
Working Note
Original cost
28,000
4,000
____________
24,000