Accounting 1 (DBA3305) Assignment Suggested Answers Question 1 (a) Definition of depreciation: That part of the cost of an asset which

h is deemed to have been consumed during an accounting period. Income for the accounting period is matched against the cost incurred in earning that income in order to find the net profit, i.e. matching concept.

Factors to be considered when calculating depreciation: - cost of the asset - useful life - estimated residual value - method (straight line, reducing balance, etc) (b) (i) Capital Cost: Purchase price of the warehouse Legal fees relating to the purchase New windows Concrete for new floor Purchase of timber for internal walls Initial decoration costs (ii) Workings: Year 2008 2009 2010 $ 9,600 8,640 7,776 $ 75,000 4,200 3,300 5,000 6,100 2,400 96,000

$96,000 x 10% ($96,000-$9,600) x 10% ($96,000-$9,600-$8,640)x10%

Journal Dr $ 2008 Dec 31 2009 Dec 31 2010 Dec 31 SCI - Depreciation: Buildings Accumulated depreciation - Buildings SCI - Depreciation: Buildings Accumulated depreciation - Buildings SCI - Depreciation: Buildings Accumulated depreciation - Buildings 9,600 9,600 8,640 8,640 7,776 7,776 Cr $

(c) Journal 2010 Aug 1 Machine Z - Cost Accumulated Depreciation - Machine Y [($180,000-$55,000)/5] X 4 SCI - Loss on Disposal Machine Y - Cost Bank ($210,000 $75,000) Dec 31 SCI - Depreciation: Machine X Accumulated Depreciation - Machine X [$250,000 ($250,000/10 X 2)]/5 SCI - Depreciation: Machine Z Accumulated Depreciation - Machine Z ($210,000-$20,000)/5 40,000 40,000 Dr $ 210,000 100,000 5,000 180,000 135,000 Cr $

38,000 38,000

Question 2 (a) (i) Journal Date Particulars 2011 Jul 2 Inventory Trade payable Funny Ltd (600x$100) Jul 10 Bank Trade receivable Pinky Company Sales Cost of goods sold Inventory (1,000x$100) Trade payable Funny Ltd Bank Bank Inventory (100x$100) Cost of goods sold Inventory ($150,000 - $110,000

Dr $ 60,000

Cr $ 60,000

80,000 220,000 300,000 100,000 100,000 60,000 60,000 10,000 10,000 40,000 40,000

Jul 11

Jul 24

Jul 31

(ii)

Tony Company Statement of comprehensive income for the month ended 31 July 2011 Sales 300,000 Less: Cost of goods sold ($100,000 + $40,000) 140,000 Gross profit 160,000

(iii) (1) Reasons for inventory loss: - breakage - obsolescence - spoilage - theft (2) The adjusting entry for inventory loss is by debiting the cost of goods sold and crediting to the inventory for the amount of inventory loss.

(b) (i) (1) 2008 Jan 1 Balance b/f

Trade Receivables - B Fong $ 200 200 2008 May 10 Bank 10 Bad debts $ 130 70 200

(2) 2008 May 10 B Fong May 10 C Wong May 10 D Tang

Bad Debts 70 150 90 310 2008 Dec 31 SCI 310

310

(ii) 2008 Dec 31 Balance c/d 2009 Dec 31 Balance c/d Allowance for doubtful debts $ 2008 900 Dec 31 SCI Impairment loss of TR 2009 Jan 1 Balance b/d Dec 31 SCI Impairment loss of TR
($1,280-$900)

$ 900

1,280

900 380 1,280

1,280 2010 Dec 31 SCI Impairment loss of

TR ($1,280-$1,050)

230 1,050 1,280

2010 Jan 1

Balance b/d

1,280

Dec 31 Balance c/d

1,280 2011 Jan 1

Balance b/d

1,050

(iii)

Statement of comprehensive income (extracts) for the years ended 31 December $ 310 900 $ 380 $ 230

2008 Less: Expenses Bad Debts Impairment loss of trade receivables 2009 Less: Expenses Impairment loss of trade receivables 2010 Add: Other Income Impairment loss of trade receivables

Statement of financial position (extract) as at 31 December 2008 2009 $ $ Current Assets Trade Receivables Less: Allowance for doubtful debts End 18,000 900 17,100 25,600 1,280 24,320

2010 $ 21,000 1,050 19,950