Mid-term exams

Amirtha commenced business on 1 January 2010. During the first two years of business the
following non-current assets were purchased on the dates shown:

Amirtha has a policy to depreciate motor vehicles at 20% per annum on cost (straight line
method) and equipment at 15% per annum on cost (straight line method), rates being charged for
each month of ownership.

REQUIRED

(a) Calculate the total depreciation for each of the years 2010 and 2011.
(i) Motor vehicles (3)
(ii) Equipment (2)

Early in 2012, consideration was given to changing to the reducing (diminishing) balance
method, with the following rates applying to the balance at the end of each year.

Motor vehicles 25%

Equipment 20%

A full years depreciation would be charged irrespective of the date of purchase.

REQUIRED

(b) Calculate the total depreciation for each of the years 2010 and 2011, using the reducing
(diminishing) balance method for:
(i) Motor vehicles (5)
(ii) Equipment (3)

The original profits for the first two years in business were:
2010 $86 000
2011 $94 000

REQUIRED

(c) Prepare a statement to show the revised profits for the years 2010 and 2011, if the reducing
(diminishing) balance method had been used. (4)

(d) Explain why it is appropriate to use the reducing (diminishing) balance method for motor
vehicles. (3)

Question 2

The following information is also available from the books of Amirtha.

During the year ended 31 December 2011 the following transactions took place.

$
Wages paid 24 100
Insurance paid 1 400
Rent received 14 000

All transactions are through the bank account.

REQUIRED

(e) Prepare the following ledger accounts for the year ended 31 December 2011, showing the
closing entry to the financial statements at the end of the year.
Dates are not required.

(i) Wages account (3)

(ii) Insurance account (3)
(iii) Rent received account (4)

Question 3
Kirsty, a sole trader, prepared the following trial balance at 30 April 2011.

The following information is also available:

1 The closing inventory at 30 April 2011 was valued at $4200.

2 Included in the general expenses is an item of equipment purchased during the

year for $1200. This item has not yet been included in the equipment account.

3 A cheque for $800 received from a credit customer has not yet been entered in the
accounts.

4 At 30 April 2011:
loan interest owing amounted to $250
electricity owing was $380
insurance was prepaid by $460
5 During the year Kirsty had withdrawn, for her personal use, goods costing $1800.
This has not been recorded in the accounts.

6 Commission receivable of $150 was owing to Kirsty at 30 April 2011.

7 The provision for doubtful debts is to be provided for a specific debt of $200, plus
2% of the remaining debtors.

8 One half of the 10% loan is repayable during the year ending 30 April 2012, and the
balance is repayable after that date.

9 Depreciation is to be provided as follows:

Equipment 10% per annum on cost.
A full years depreciation is provided on all equipment held at 30 April 2011,
regardless of the date of purchase.
Motor vehicles 25% by the reducing (diminishing) balance method. There were
no additions or disposals during the year.

REQUIRED

(a) Prepare the income statement (trading and profit and loss account) for Kirsty for the
year ended 30 April 2011. (12)

(b) Prepare the statement of financial position (balance sheet) for Kirsty at 30 April 2011. (8)