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  • Financial Accounts: Check Your Understanding G: Activity 3.5.E

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    SOURAV MONDAL
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    Festa Ltd is a private limited company started in January 2012 by Ashleigh Yi, who owns 80% of shares. Her accountant Courtney Yule owns the remaining 20% and pointed out that Ashleigh omitted depreciation of $200,000 in fixed assets from her financial forecasts. Courtney suggested using a 4-year useful life and $40,000 residual value to calculate depreciation using the straight-line method. The questions ask to define residual value, differentiate depreciation methods, use the reducing balance method to calculate asset value after 3 years, calculate the annual depreciation using straight-line, and prepare 2012-2013 profit and loss statements including straight-line depreciation and 25%

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    Festa Ltd is a private limited company started in January 2012 by Ashleigh Yi, who owns 80% of shares. Her accountant Courtney Yule owns the remaining 20% and pointed out that Ashleigh omitted depreciation of $200,000 in fixed assets from her financial forecasts. Courtney suggested using a 4-year useful life and $40,000 residual value to calculate depreciation using the straight-line method. The questions ask to define residual value, differentiate depreciation methods, use the reducing balance method to calculate asset value after 3 years, calculate the annual depreciation using straight-line, and prepare 2012-2013 profit and loss statements including straight-line depreciation and 25%

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    17 views2 pages

    Financial Accounts: Check Your Understanding G: Activity 3.5.E

    Uploaded by

    SOURAV MONDAL
    Festa Ltd is a private limited company started in January 2012 by Ashleigh Yi, who owns 80% of shares. Her accountant Courtney Yule owns the remaining 20% and pointed out that Ashleigh omitted depreciation of $200,000 in fixed assets from her financial forecasts. Courtney suggested using a 4-year useful life and $40,000 residual value to calculate depreciation using the straight-line method. The questions ask to define residual value, differentiate depreciation methods, use the reducing balance method to calculate asset value after 3 years, calculate the annual depreciation using straight-line, and prepare 2012-2013 profit and loss statements including straight-line depreciation and 25%

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    © All Rights Reserved
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    IBBusinessandManagement.

    com CHECK YOUR


    FINANCIAL ACCOUNTS: Activity 3.5.E UNDERSTANDING
    Read the case study below and answer the questions that follow. G

    Festa Ltd
    Ashleigh Yi started a new business in January
    2012. She set the firm up as a private limited
    company, Festa Ltd. Ashleigh took a majority 80
    per cent shareholding in the business and
    appointed herself as Chief Executive Officer. Her
    accountant, Courtney Yule, joined Ashleigh buying
    the remaining shares.
    To finance the launch, Ashleigh estimated a figure
    of $300,000. She produced a business plan and
    forecast financial information as part of the process of obtaining most of the required finance
    (see table below). Ashleigh presented this financial information to Courtney Yule.
    Courtney examined the figures and pointed out that Ashleigh had omitted a provision for
    depreciation of the firm’s fixed assets, which were valued at $200,000 on start-up. She
    suggested that Ashleigh worked on the basis of a four-year life for the assets and estimated a
    residual value of $40, 000.
    Forecast financial information for Festa Ltd for the years 2012 and 2013

    2012 2013
    ($000) ($000)
    Turnover 485 870
    Cost of sales 245 450
    Expenses 91 138
    Non-operating income 11 13 Non-operating income (income unrelated
    Interest 20 55 to sales; e.g. interest received, dividends
    Tax 35 60
    from shares held in other companies,
    Dividends 60 75
    subsidies from Govt.) is added in here

    Source: www.IBBusinessandManagement.com

    24 marks, 50 minutes

    1. Define residual value. [2 marks]

    2. Differentiate between straight line and the reducing balance methods of depreciation.
    [4 marks]

    3. If the company decides to use an annual depreciation rate of 30 per cent, use the
    reducing balance method of depreciation to calculate the book value of Festa Ltd.’s
    assets after three years. [4 marks]

    4. Using straight-line depreciation, calculate the annual provision for depreciation that
    George had omitted. (Show all of your working) [4 marks]

    5. Using the financial information provided for 2012 and 2013, prepare profit and loss
    accounts for the two years, adjusting the figures in the table above to include the
    provision for (straight line) depreciation and re-calculating the tax payment to equal 25
    per cent of net profit before tax. [10 marks]

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