CASE CA: acquisition, depreciation, revaluation

I. Computations:
Step 1. Computation of the initial cost of the inventory (for all three acquisitions)
 Net acquisition cost……………………………..4,240 m.u (without VAT)
 VAT deductable (from acquisitions)………..805 m.u
 Total acquisiton cost …………………………. 5,045 m.u.

Acquisitions Quantity (kg) Unit price Net value Total value (VAT of
(m.u./kg) 19% included)
1st 100 20 2,000 2,380
2d 80 22 1,760 2,094
3d 20 24 480 571
TOTAL 200 4,240 5045
……..

Step2. Production
Production consumptions :
 Cocobeans (190 kg)……………………………………………………………4,000 m.u (see table below)
 Other ingredients………………………………………………………………1,000 m.u.
 Utility cost…………………………………………………………………………….500 m.u.
 Depreciation of the assembly line……………………………………… 500 m.u.
 Salary cost………………………………………………………………………….4,000 m.u.
  Total production cost for 250 kg of chocolate……………………10,000 m.u.
 Production cost per 1kg of chocolate…………………………………….. 40 m.u./kg
Acquisitions Quantity (kg) Unit price Net value COGS (FIFO)
(m.u./kg) 190 KG
1st 100 20 2,000 2,000
2d 80 22 1,760 1,760
3d 20 24 480 240
TOTAL 200 4,240 4,000
Step 3. Sale and disposal of invetory
 Sale revenues (200kg at % margin)……………………………………………… 9,200 m.u.(without VAT)
 -Cost of goods sold (200kg * 40 m.u)……………………………………………..-8,000m.u.
 Gross margin………………………………………………………………………………….1,200 m.u.
Stept 4: Physical cheking of inventories
From bookkeeping system ending inventory of cocoabeans 10kg *24 m.u.… 240 m.u.
From cheking procedure ending inventory 8 kg *24 m.u… 192 m.u
To be recorded………………………………………………………………………………………………..(48 m.u.)
Step 5. End of the year market price of chocolate is 35 m.u./kg
From bookkeeping system ending inventory of chocolate 50kg *40 m.u.……………2,000 m.u.
Market price of ending invent. Chocolate 50kg *35 m.u………………………………………..1,750 m.u
To be recorded ………………………………………………………………………………………………………(250 m.u.)
 II. Effects on the financial statement (there are two perspectives of recoding: the international patern and
the Romanian one):

a) Acquisition of inventories:

International Romania
ASSETS = EQUITY + LIABILITIES ASSETS = EQUITY + LIABILITIES

+ 4,240 m.u = 0 + 5,045 m.u + 4,240 m.u = 0 + 5,045 m.u

+ 805 m.u + 805 m.u
↓ ↓ ↓ ↓
“Cocoabeans” +4,240 m.u “Cocoabeans” +4,240 m.u
“VAT deductible” + 805 m.u “ Account payables” + 5,045 m.u “VAT deductible” + 805 m.u “ Account payables” + 5,045
m.u
The impact is on the Balance Sheet of the company, current assets increase,
VAT increase ., liabilities increase. The impact is on the Balance Sheet of the company, current
assets increase by, VAT increase ., liabilities increase.

b) Production:

International approach Romanian approach

ASSETS = EQUITY + LIABILITIES ASSETS = EQUITY + LIABILITIES

+ 4,000 m.u* (coco) = 0 + 0 + 4,000 m.u* (coco) = 0 + 0

+ 1,000 m.u** + 1,000 m.u**
+ 500 m.u***. = + 500 m.u A/P + 500 m.u***. = + 500 m.u A/P
+ 500 m.u = + 500 m.u =
+ 4,000 m. u = 0 + 4,000 m.u (Salary payables) + 4,000 m. u = 0 + 4,000 m.u (Salary
-4,000 m.u* (coco) payables)
- 1,000 m.u** (other ingred) -4,000 m.u* (coco)
- 500 m.u ***(Accumulated depreciation) - 1,000 m.u** (other ingred)
- 500 m.u ***(Accumulated depreciation)
10,000 “W.I.P “ = % 10,000
“Cocoabeans” 4,000 4,000 “Expenses with cocobeans”= “Cocoabeans” 4,000
“Other ingredints” 1,000 1,000 “Exp wit other ingred.” = “Other ingredints” 1,000
“Account payables” 500 500 “ Exp with utiliies” = “Account payables” 500
“ Accumulated depreciation” 500 500 “Exp with depreciation”= “ Accumulated deprec.” 500
“Salary payables” 4,000 4,000 “Exp with salaries” = “Salary payables” 4,000

c) Completion of the production process

International Romania
ASSETS = EQUITY + LIABILITIES
ASSETS = EQUITY + LIABILITIES
+ 10,000 m.u = +10,000 m.u
+ 10,000 m.u = 0 -10,000 m.u
-10,000 m.u ↓ ↓
↓ “Finish goods” +10,000 m.u
“Finish goods” +10,000 m.u “Revenues from production”+ 10,000 m.u
“WIP” - 10,000 m.u

10,000 “Finish goods”= “Revenues from production” 10,000

10,000 “Finish goods” = “W.I.P” 10,000
d)Sale
 International Romania
a) sale
ASSETS = EQUITY + LIABILITIES ASSETS = EQUITY + LIABILITIES

+ 10,945 m.u = + 9,200 + 1,748 m.u + 10,945 m.u = + 9,200 + 1,748 m.u
↓ ↓ ↓ ↓ ↓ ↓
“Acc. receivebles” +10,945 m.u “Acc. receivebles” +10,945 m.u
“Sale revenues” + 9,200 m.u “Sale revenues” + 9,200 m.u
“VAT collectable” +1,748 “VAT collectable” +1,748

10,945 “Acc receivables” = % 10,945 10,945 “Acc receivables” = % 10,945

“Sale revenues” 9,200 “Sale revenues” 9,200
“VAT collectable” 1,748 “VAT collectable” 1,748
a) disposal
b) disposal ASSETS = EQUITY + LIABILITIES
ASSETS = EQUITY + LIABILITIES
- 8,000 m.u = - 8,000
- 8,000 m.u = - 8,000 ↓ ↓
↓ ↓
“Finish goods (chocolate)”- 8,000
“Finish goods (chocolate)”- 8,000 “Rev from production” 8,000
“Cost of goods sold” 8,000
8,000 m.u. “Revenues from prod”= “ Finish goods (chocolate)” 8,000
8,000 m.u. “Cost of goods sold”= “ Finish goods (chocolate)” 8,000

d) Physical cheking
 International Romania
ASSETS = EQUITY +
ASSETS = EQUITY + LIABILITIES LIABILITIES

-48 m.u = - 48 m.u + 0 -48 m.u = - 48 m.u + 0

↓ ↓ ↓ ↓
“Cocoabeans” – 48 m.u. “Cocoabeans” – 48 m.u.
24,000 m.u 24,000 m.u
“ Expense (loss) with cocoabeans” 48 m.u “ Expense (loss) with cocoabeans” 48
m.u
48 mu.u “ Expense (loss) with cocoabeans” = “Cocoabeans” 48 m.u.
48 mu.u “ Expense (loss) with cocoabeans” = “Cocoabeans”
48 m.u.
e) Net realisable value setting

Method 1 Method 2
ASSETS = EQUITY + LIABILITIES ASSETS = EQUITY + LIABILITIES

-250 m.u = - 250 m.u + 0 -250 m.u = - 250 m.u + 0

↓ ↓ ↓ ↓
“Finish goods (chocolate)” – 250 m.u. “Finish goods (chocolate)” – 250 m.u.
“ Expense (loss) with FG (chocolate)” 250 m.u “ Expense (loss) with FG (chocolate)” 250
m.u
250 m.u “ Expense (loss) with FG (chocolate)” = “Finish goods” 250m.u.
250 m.u “ Expense (loss) with FG (chocolate)” = “Finish goods”
250m.u.
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Additional information(optional): showing the postings in the “T” accounts .