Accounting for managers sample Assignment

Question 1:

Part A: The inventory balance at the end of June 30th, 2015 using FIFO method is provide in the table below:

Date

Particulars

Units (Purchase / Sales)

Units (Balance)

Amount ($)

2013

Purchase

Sales

Balance

Jul-13

Balance inventory at the beginning

200.00

1,000.00

Jul-13

Sales

120.00

80.00

1,080.00

400.00

Aug-13

Purchases

300.00

380.00

1,575.00

1,975.00

Aug-17

Sales

250.00

130.00

2,250.00

682.50

Sep-03

Purchases

450.00

580.00

2,385.00

3,067.50

Sep-10

Purchase returns

50.00

530.00

(265.00)

2,802.50

Sep-30

Sales

300.00

230.00

2,700.00

1,219.00

Oct-05

Purchases

300.00

530.00

1,620.00

2,839.00

Dec-08

Purchases

250.00

780.00

1,362.50

4,201.50

Dec-11

Sales

500.00

280.00

4,500.00

1,524.50

2014

Feb-14

Purchases

150.00

430.00

825.00

2,349.50

Mar-18

Purchases

100.00

530.00

560.00

2,909.50

Apr-30

Sales

300.00

230.00

2,700.00

1,275.00

May-02

Sales return

30.00

260.00

(270.00)

1,439.50

May-04

Purchases

250.00

510.00

1,425.00

2,864.50

Jun-06

Purchases

300.00

810.00

1,755.00

4,619.50

Jun-30

Sales

460.00

350.00

4,140.00

2,040.00

The inventory balance at the end of June 30, 2015 using Moving average method is given below in the table:

Date

Particulars

Units (Purchase / Sales)

Units (Balance)

Amount ($)

2013

Purchase

Sales

Balance

Jul-13

Balance inventory at the beginning

200.00

1,000.00

Jul-13

Sales

120.00

80.00

1,080.00

400.00

Aug-13

Purchases

300.00

380.00

1,575.00

1,975.00

Aug-17

Sales

250.00

130.00

2,250.00

675.66

Sep-03

Purchases

450.00

580.00

2,385.00

3,060.66

Sep-10

Purchase returns

50.00

530.00

263.85

2,796.81

Sep-30

Sales

300.00

230.00

2,700.00

1,213.71

Oct-05

Purchases

300.00

530.00

1,620.00

2,833.71

Dec-08

Purchases

250.00

780.00

1,362.50

4,196.21

Dec-11

Sales

500.00

280.00

4,500.00

1,506.33

2014

Feb-14

Purchases

150.00

430.00

825.00

2,331.33

Mar-18

Purchases

100.00

530.00

560.00

2,891.33

Apr-30

Sales

300.00

230.00

2,700.00

1,254.73

May-02

Sales return

30.00

260.00

(270.00)

1,418.39

May-04

Purchases

250.00

510.00

1,425.00

2,843.39

Jun-06

Purchases

300.00

810.00

1,755.00

4,598.39

Jun-30

Sales

460.00

350.00

4,140.00

1,986.96

Part B:

Moving average method:

Journal entry to record the missing inventory

Date

Particulars

Debit amount ($)

Credit amount ($)

30-Jun-14

Pilferage Account ----Dr.

283.85

To, Inventory

283.85

(Being 50 units of inventory found to be missing at the time of physical verification)

30-Jun-14

Profit and loss Account------Dr.

283.85

To, Pilferage Account

283.85

(Being the pilferage of 50 units adjusted against the profit and loss of the company)

FIFO

Journal entry to record the missing inventory

Date

Particulars

Debit amount ($)

Credit amount ($)

30-Jun-14

Pilferage Account ----Dr.

285.00

To, Inventory

285.00

(Being 50 units of inventory found to be missing at the time of physical verification)

30-Jun-14

Profit and loss Account------Dr.

285.00

To, Pilferage Account

285.00

(Being the pilferage of 50 units adjusted against the profit and loss of the company)

(Vernimmen et al. 2014)

Part C:

Inventory Control Account

Date

Particulars

Receipts (Units)

Issue (Units)

Balance (Units)

30-Jul-13

Balance b/d

200

200

Jul-30

Sales

120

80

Aug-25

Purchases

300

380

Aug-30

Sales

250

130

Sep-03

Purchases

450

580

Sep-10

Purchase returns

50

530

Sep-30

Sales

300

230

Oct-05

Purchases

300

530

Dec-08

Purchases

250

780

Dec-11

Sales

500

280

21-Feb-14

Purchases

150

430

Mar-18

Purchases

100

530

Apr-30

Sales

300

230

May-02

Sales return

30

260

May-04

Purchases

250

510

Jun-06

Purchase

300

810

Jun-30

Sales

460

350

Jun-30

Pilferage

50

300

Cost of sales account

Particulars

Debit ($)

Particulars

Credit ($)

To, opening materials

1,000.00

By, Purchase return

265.00

To, Purchases

1,575.00

By, Pilferage

283.85

To, Purchases

2,385.00

By, closing stock

1,703.11

To, Purchases

1,620.00

To, Purchases

1,362.50

To, Purchases

825.00

To, Purchases

560.00

To, Purchases

1,425.00

To, Purchases

1,755.00

By, Trading & P L A/c

10,255.54

12,507.50

12,507.50

Sales Account

Particulars

Debit ($)

Particulars

Credit ($)

To, Return

270.00

By, Bank

1,080.00

By, Bank

2,250.00

By, Bank

2,700.00

By, Bank

4,500.00

By, Bank

2,700.00

By, Bank

4,140.00

To, Trading & P L A/C

17,100.00

17,370.00

17,370.00

Question 2:

Part A:

Depreciation Schedule

Straight Line method:

Depreciation each year

110,000.00

Year ending 30th June

Annual depreciation expenses

Accumulated Depreciation

Carrying amount at the end of the year

2014

110,000.00

110,000.00

1,090,000.00

2015

110,000.00

220,000.00

980,000.00

2016

110,000.00

330,000.00

870,000.00

2017

110,000.00

440,000.00

760,000.00

2018

110,000.00

550,000.00

650,000.00

Diminishing Balance method:

A 15% per annum rate of depreciation has been assumed

Year ending 30th June

Annual depreciation expenses

Accumulated Depreciation

Carrying amount at the end of the year

2014

180,000.00

180,000.00

1,020,000.00

2015

153,000.00

333,000.00

867,000.00

2016

130,050.00

463,050.00

736,950.00

2017

110,542.50

573,592.50

626,407.50

2018

93,961.13

667,553.63

532,446.38

(Ragin 2014)

Sum of years digit method:

Depreciable value

1100000

Useful life

10 years

55

Year ending 30th June

Annual depreciation expenses

Accumulated Depreciation

Carrying amount at the end of the year

2014

200,000.00

200,000.00

1,000,000.00

2015

180,000.00

380,000.00

820,000.00

2016

160,000.00

540,000.00

660,000.00

2017

140,000.00

680,000.00

520,000.00

2018

120,000.00

800,000.00

400,000.00

Units of production method:

Depreciable value

1,100,000.00

Useful life

10 years

Total expected production (Units)

500,000.00

Year

Expected production (Units)

2014

50,000.00

2015

45,000.00

2016

55,000.00

2017

58,000.00

2018

60,000.00

Year ending 30th June

Annual depreciation expenses

Accumulated Depreciation

Carrying amount at the end of the year

2014

110,000.00

110,000.00

1,090,000.00

2015

99,000.00

209,000.00

991,000.00

2016

121,000.00

330,000.00

870,000.00

2017

127,600.00

457,600.00

742,400.00

2018

132,000.00

589,600.00

610,400.00

(Sharma and Singh 2015)

Part B:

Depreciation is generally charged on fixed assets that are used in business organizations to manufacture or produce goods or for providing services. It can be defined as the charge on fixed assets for its use in business organization to adhere with one of the fundamental concepts of accounting, i.e. matching expenditures with revenue in a particular period to calculate the actual profit or loss of a business for the period. Fixed assets are generally those assets which are used for more than few years in a business organizations to generate revenue for the business. There are more than few accepted methods that can be used to provide for depreciation on fixed assets. Depending on the character of an asset and its intended use in a business organization the management along with the accountants should decide the most apt and suitable method of charging and providing for depreciation in the financial statements for such fixed asset. Different acceptable depreciation methods to provide for depreciation on fixed assets are following:

Straight line method of charging depreciation: This is the most basic method of charging depreciation and also the most followed method of depreciation as business organizations across the globe use this method to provide for depreciation on different types of fixed assets. In this method the depreciable value of a fixed asset is equally depreciated by charging equal depreciation for each year during the useful life of a fixed asset. The depreciable value of a fixed asset is calculated by deducting the residual value of a fixed asset from its acquisition and installation costs. The useful life of a fixed asset is the period of time for which the asset is expected to be used in a business organization for generation of revenue. The advantages of using this method of depreciation is its simplicity and easier computation of depreciation amount. However, the method is too simple and is not at all scientific thus, not acceptable in case of fixed assets that are expected to have differing contribution in revenue generation activities in an organization over its useful life (Sharma and Singh 2015).

Diminishing balance method of depreciation: In diminishing balance method depreciation is charged in each year by using an appropriate rate of depreciation based on the nature and character of fixed assets. The depreciation rate is charged on the diminishing balance of a fixed asset thus, known as diminishing balance method of depreciation. The advantages of using this method is its superior ability to match expenditures relating to use of fixed assets in capital intensive organization. The use of this method is also accepted by income tax authorities of a country. The disadvantages of using the method includes ascertaining an appropriate rate of depreciation, the method is not suitable for each and every type of fixed assets.

Sum of year’s digit method: In this method the sum of years, i.e. useful life’s years are added to ascertain sum of years’ digit. Then the depreciation is charged in reverse order by multiplying the depreciable value of the asset with the last year’s digit and then dividing the outcome with the sum of years’ digit. This method is rarely used by business organizations as the method is not scientific in its approach and apportionment of depreciation.

Unit of production method: In case of estimation of total production of a particular product or goods from the sue of a fixed asset is possible with estimation of production in different years during the useful life of the fixed asset then there is no better method of charging depreciation than using the unit of production method. In this method the depreciable value of a fixed asset is apportioned as depreciation between the useful life of the asset using the unit production in different years and total unit of production during the useful life of the asset. The advantage of this method is its ability to correctly match the expenditures in relation with a fixed asset with the revenue. The depreciation charged using this method in all probability will help an organization to correctly show its operating results. The disadvantage of this method is that the management needs to be very careful while assessing the expected total production and year-wise production of a particular fixed asset.

Question 3:

Part A:

Machinery Account

Date

Particulars

Debit ($)

Date

Particulars

Credit ($)

01-01-11

To, Cash

33,000.00

31-12-11

By, Depreciation A/C

2,500.00

31-12-11

By, Balance c/d

30,500.00

33,000.00

33,000.00

01-01-12

To, Balance b/d

30,500.00

31-12-12

By, Depreciation A/C

2,500.00

31-12-12

By, Balance c/d

28,000.00

30,500.00

30,500.00

01-01-13

To, Balance b/d

28,000.00

30-09-13

By, Depreciation A/C

1,875.00

30-09-13

To, Cash

25,000.00

30-09-13

By, Cash

17,000.00

30-09-13

By, Profit & Loss A/c

9,125.00

31-12-13

By, Depreciation A/C

2,812.50

31-12-13

By, Balance c/d

22,187.50

53,000.00

53,000.00

01-01-14

To, Balance b/d

22,187.50

30-06-14

By, Depreciation A/C

4,992.19

30-06-14

By, Balance c/d

17,195.31

22,187.50

22,187.50

01-07-14

To, Balance b/d

17,195.31

30-06-15

By, Depreciation A/C

8,898.57

01-07-14

To, Revaluation

2,579.30

30-06-15

By, Balance c/d

10,876.04

19,774.61

19,774.61

Depreciation Account

Date

Particulars

Debit ($)

Date

Particulars

Credit ($)

31-12-11

To, Machinery

2,500.00

31-12-11

By, Profit & Loss A/c

2,500.00

2,500.00

2,500.00

31-12-12

To, Machinery

2,500.00

31-12-12

By, Profit & Loss A/c

2,500.00

2,500.00

2,500.00

30-09-13

To, Machinery

1,875.00

30-09-13

By, Profit & Loss A/c

1,875.00

31-12-13

To, Machinery

2,812.50

31-12-13

By, Profit & Loss A/c

2,812.50

4,687.50

4,687.50

30-06-14

To, Machinery

4,992.19

30-06-14

By, Profit & Loss A/c

4,992.19

4,992.19

4,992.19

30-06-15

To, Machinery

8,898.57

30-06-15

By, Profit & Loss A/c

8,898.57

8,898.57

8,898.57

Part B:

Statement of financial position as on June 30, 2012 (Extract)

Particulars

Amount ($)

Amount ($)

Gross Block of Machinery

33,000.00

Less: Accumulated Depreciation

3,750.00

Net Block

29,250.00

Statement of financial position as on June 30, 2014 (Extract)

Particulars

Amount ($)

Amount ($)

Gross Block of Machinery

25,000.00

Less: Accumulated Depreciation

8,437.50

Net Block

16,562.50

Statement of financial position as on June 30, 2015 (Extract)

Particulars

Amount ($)

Amount ($)

Gross Block of Machinery after revaluation

27,579.30

Less: Accumulated Depreciation

16,703.26

Net Block

10,876.04

Part C:

Machinery Account

Date

Particulars

Debit ($)

Date

Particulars

Credit ($)

01-01-11

To, Cash

33,000.00

31-12-11

By, Depreciation A/C

2,500.00

31-12-11

By, Balance c/d

30,500.00

33,000.00

33,000.00

01-01-12

To, Balance b/d

30,500.00

31-12-12

By, Depreciation A/C

2,500.00

31-12-12

By, Balance c/d

28,000.00

30,500.00

30,500.00

01-01-13

To, Balance b/d

28,000.00

30-09-13

By, Depreciation A/C

1,875.00

30-09-13

To, Cash

25,000.00

30-09-13

By, Cash

17,000.00

30-09-13

By, Profit & Loss A/c

9,125.00

31-12-13

By, Depreciation A/C

2,812.50

31-12-13

By, Balance c/d

22,187.50

53,000.00

53,000.00

01-01-14

To, Balance b/d

22,187.50

30-06-14

By, Depreciation A/C

4,992.19

30-06-14

By, Balance c/d

17,195.31

22,187.50

22,187.50

01-07-14

To, Balance b/d

17,195.31

01-07-14

By, Revaluation

2,579.30

01-07-14

30-06-15

By, Depreciation A/C

6,577.21

30-06-15

By, Balance c/d

10,618.11

17,195.31

17,195.31

Depreciation Account

Date

Particulars

Debit ($)

Date

Particulars

Credit ($)

31-12-11

To, Machinery

2,500.00

31-12-11

By, Profit & Loss A/c

2,500.00

2,500.00

2,500.00

31-12-12

To, Machinery

2,500.00

31-12-12

By, Profit & Loss A/c

2,500.00

2,500.00

2,500.00

30-09-13

To, Machinery

1,875.00

30-09-13

By, Profit & Loss A/c

1,875.00

31-12-13

To, Machinery

2,812.50

31-12-13

By, Profit & Loss A/c

2,812.50

4,687.50

4,687.50

30-06-14

To, Machinery

4,992.19

30-06-14

By, Profit & Loss A/c

4,992.19

4,992.19

4,992.19

30-06-15

To, Machinery

6,577.21

30-06-15

By, Profit & Loss A/c

6,577.21

6,577.21

6,577.21

(Warren Jr et al. 2015)

References:

Ragin, C.C., 2014. The comparative method: Moving beyond qualitative and quantitative strategies. Univ of California Press.

Sharma, R.D. and Singh, N., 2015. Use of Depreciation as a Tax Policy Device to Control Inflation.

Vernimmen, P., Quiry, P., Dallocchio, M., Le Fur, Y. and Salvi, A., 2014. Corporate finance: theory and practice. John Wiley & Sons.

Warren Jr, J.D., Moffitt, K.C. and Byrnes, P., 2015. How Big Data will change accounting. Accounting Horizons, 29(2), pp.397-407.