U Win Bo Myint Bad Debt to Manufacturing Level II

Irrecoverable Debt
Question – 1
Eve maintains an allowance for doubtful debts of 2% of trade receivables.
On 1 January 2020 trade receivables were $92,600
On 1 December 2020 a cheque for $1,050 was received from a credit customer whose debt had been
written off in 2019.
On 31 December 2020 trade receivables were $104,800.
Required
(a) Calculate the allowance for doubtful debts at:
(i) 1 January 2020
(ii) 31 December 2020
(iii) Prepare the allowance for doubtful debts account for the year ended 31 December 2020. Balance
the account on this date and bring the balance down on 1 January 2021.
(b) Prepare journal entries to record the irrecoverable debt recovered and its year end transfer to the
financial statements. Narratives are required.

Question – 2
Fengbo buys and sells goods on credit only. He provided the following information for the year ended 31
May 2020.
1 June 31 May
2019 2020
$ $
Trade receivables ledger control 31,400 39,230
Irrecoverable debts of $330 are to be written off and the allowance for doubtful debts is to be decreased
from 3% of trade receivables to 2% of trade receivables.
Required
(a) Prepare journal entries including narratives:
(i) to record the irrecoverable debt to be written off
(ii) to record the year-end transfer to the financial statements.
(b) Calculate the allowance for doubtful debts at:
(i) 1 June 2019
(ii) 31 May 2020.
(c) Prepare the allowance for doubtful debts account for the year ended 31 May 2020. Balance the
account on this date and bring the balance down on 1 June 2020.

1
 U Win Bo Myint Bad Debt to Manufacturing Level II

Depreciation
Question – 1
Albert provided the following information.
At 1 December 2020
Non-current asset Cost Accumulated Carrying
$ depreciation value
$ $
Motor vehicles 95,800 68,200 27,600
Equipment 47,400 21,690 25,710

During the year ended 30 November 2021

2021 Transaction
1 January A motor vehicle costing $28,000 with a carrying value of $8,859 was
sold for $8,950
1 September A motor vehicle costing $11,547 was purchased by cheque.
1 October Equipment costing $2,020 was purchased by cheque.
1 November Equipment costing $1,100 with accumulated depreciation of $660 was
sold for $440
• Equipment is depreciated at 15% per annum using the straight-line method.
• Motor vehicles are depreciated at 25% per annum using the reducing (diminishing) balance method.
For all non-current assets a full year’s depreciation is charged in the year of purchase and none in the
year of disposal.
Required
(a) Calculate for the year ended 30 November 2021 the:
(i) profit/loss on disposal of the motor vehicle
(ii) depreciation charge for motor vehicles
(iii) depreciation charge for equipment
(b) Prepare a journal entry to record the depreciation charge for the year ended 30 November 2021. A
narrative is not required.
(c) Prepare the following accounts for the year ended 30 November 2021. Balance the accounts on this
date and bring the balances down on 1 December 2021.
(i) Motor Vehicles – Cost Account
(ii) Motor Vehicles – Provision for Depreciation Account

2
 U Win Bo Myint Bad Debt to Manufacturing Level II

Question – 2
Ojie, a manufacturer, provided the following information for the year ended 31 March 2021.
1 April 31 March
2020 2021
$ $
Factory machinery
– cost 41,900 42,420
– accumulated depreciation 13,780 To be
calculated
On 31 March 2021 factory machinery with a carrying value of $840 was sold for $1,688 and new factory
machinery was purchased costing $3,470.
Factory machinery is depreciated at 15% per annum using the straight-line method. A full year’s
depreciation is charged in the year of purchase and none in the year of disposal.

Required
(a) Calculate the profit or loss on disposal of the factory machinery.
(b) Prepare the following accounts for the year ended 31 March 2021. Balance the accounts on this date
and bring the balances down on 1 April 2021.
(i) Factory Machinery – Cost Account
(ii) Accumulated Depreciation – Factory Machinery Account

3
 U Win Bo Myint Bad Debt to Manufacturing Level II

Accrued & Prepaid

Question – 1
Claude provided the following information for the year ended 31 March 2019.
1 April 31 March
2018 2019
$ $
Rental income received 3,020
Rental income in advance 220 480

Required
Prepare the rental income account.

Question – 2
Wai, a manufacturer, provided the following information for the year ended 30 November 2018.
1 30
December November
2017 2018
$ $
Other payables – rent 3,500 3,800
Rent expenditure 36,500

Required
Prepare the rent account for the year ended 30 November 2018.

Question – 3
On 1 June 2020 insurance, $4,320, owing for the year ended 31 May 2020 was paid.
On 1 June 2021 insurance, $5,160, owing for the year ended 31 May 2021 was paid.
Required
Prepare the insurance account showing the transfer to the statement of profit or loss for the year ended
31 May 2021. Balance the account on this date and bring the balance down on 1 June 2021.

4
 U Win Bo Myint Bad Debt to Manufacturing Level II

Company
Question – 1
Xyo Ltd provided the following information.
At 1 August 2020 $
Share capital (ordinary shares of $1 each) 46,000
Share premium 8,000
Retained earnings 18,150

On 1 January 2021 18,000 ordinary shares were issued at a premium of $0.40 per share.
On 1 August 2021 an ordinary share dividend of 6% was paid on all shares in issue on that date.

Required
Prepare the statement of changes in equity for the year ended 31 August 2021.
Xyo Ltd
Statement of changes in equity for the year ended 31 August 2021
Share Share Retained Total
capital premium earnings
$ $ $ $
Balance at 1 September 2020
Share issue
Profit for the year
Dividend
Balance at 31 August 2021

Question – 2
Rumred Ltd provided the following information in addition to the incomplete statement of financial position
at 30 April 2021.
At 1 May 2020 $
Equipment
– cost 72,400
– accumulated depreciation 33,900
Share capital (ordinary shares of $1 each) 46,000
Share premium 14,000
Retained earnings 12,200

On 1 December 2020 22,000 ordinary shares were issued at a premium of $0.30 per share.
On 1 January 2021 equipment costing $3,300 was purchased.
Equipment is depreciated at 15% per annum using the straight-line method. Depreciation is charged for
each month of ownership.

5
 U Win Bo Myint Bad Debt to Manufacturing Level II

Required
(a) Identify which one of the following decreases if the general reserve increases.
A. Retained earnings
B. Revaluation reserve
C. Share capital
D. Share premium
(b) Identify which one of the following is not shown on a statement of changes in equity.
A. Debentures issued
B. Equity shares issued
C. Profit for the year
D. Transfer to general reserve
For the year ended 30 April 2021, the draft profit of Rumred Ltd was $22,495 before charging
depreciation.
(c) Calculate the:
(i) depreciation charge
(ii) adjusted profit
(d) Complete the statement of financial position at 30 April 2021.
Rumred Ltd
Statement of financial position at 30 April 2021
Assets $ $
Non-current assets
Equipment
Current assets
Inventory 97,660
Trade receivables 25,335 122,995

Total assets

Equity and liabilities

Equity
Share capital
Share premium
Retained earnings
Total equity
Non-current liabilities
6% debentures (2030) 8,000

6
U Win Bo Myint Bad Debt to Manufacturing Level II

Current liabilities
Trade payables 15,700
Bank overdraft 17,800
33,500
Total liabilities
Total equity and liabilities

7
 U Win Bo Myint Bad Debt to Manufacturing Level II

Manufacturing
Question – 1
Carolyn, a manufacturer, provided the following information for the year ended 31 January 2021.
1 31
February January
2020 2021
$ $
Production machinery
– cost 171,500 171,500
– provision for depreciation 85,800 98,655
Inventory
– raw material 18,620 13,540
– work in progress 25,400 29,590
– finished goods 25,700 27,800
Other payables – wages production staff 1,540 –
Carriage inwards 630
Carriage outwards 1,275
Factory rent 24,500
General expenses 59,600
Purchases – raw materials 144,770
Royalties 6,450
Supervisor salary 28,000
Wages paid – production staff 60,700

• General expenses are apportioned 75% to the factory and 25% to administration.
• The supervisor’s salary is apportioned 70% to the factory and 30% to administration.
Required
(a) State one difference between an inventory of raw materials and an inventory of finished goods.
(b) Identify the effect of indirect labour being treated as direct labour.
(i) Prime cost overstated
(ii) Prime cost understated
(iii) Production cost overstated
(iv) Production cost understated
(c) Calculate the charge to the manufacturing account for the year ended 31 January 2021 for:
(i) depreciation – production machinery
(ii) wages – production staff.

8
 U Win Bo Myint Bad Debt to Manufacturing Level II

(d) Prepare the manufacturing account for the year ended 31 January 2021 showing both prime cost
and production cost.

Question – 2
Arthur, a manufacturer, provided the following information.
Arthur
Manufacturing account for the year ended 31 May 2021
$ $
Raw materials
Opening inventory of raw materials 17,600
Purchases of raw materials 131,110
148,710
Closing inventory of raw materials (15,960)
Cost of raw materials consumed 132,750
Direct labour 85,350
Prime cost 218,100
Overheads
General expenses 34,950
Supervisors’ salaries 33,200
Machinery depreciation 13,390 81,540
299,640
Add: opening work in progress 22,150
Less: closing work in progress (28,320) (6,170)
Production cost 293,470

1 June 31 May
2020 2021
$ $
Inventory of finished goods
– bought in 7,990 8,030
– manufactured 26,310 23,540
Office equipment – carrying value 23,780 19,024
Other receivables – office wages 1,070 990

9
 U Win Bo Myint Bad Debt to Manufacturing Level II

Office wages paid 21,200

Purchases – finished goods 9,460
Returns inwards 1,725
Revenue 398,290

Supervisors’ salaries are apportioned 80% to the factory.

General expenses are apportioned 75% to the factory.
There were no additions or disposals of office equipment during the year.
Required
(a) Calculate for the year ended 31 May 2021 the charge to the statement of profit or loss for the office:
(i) wages
(ii) supervisors' salaries
(iii) general expenses
(iv) depreciation charge – office equipment
(b) Prepare the statement of profit or loss for the year ended 31 May 2021.
(c) Calculate the value of inventory to be shown in the statement of financial position at 31 May 2021.
(d) State two reasons why a manufacturer may purchase finished goods.

10