RIFT VALLEY UNIVERSITY

DEPARTMENT OF ACCOUNTING AND FINANCE

BA in Accounting and Finance
Intermediate Financial Accounting- I: Individual Assignment - I (30%)
Course Lecturer: Tolesa F.
Submission Date: On Final Exam

Question 1
What accounting treatment is normally given to the following items in accounting for plant
assets?
a. Additions.
b. Major repairs.
c. Improvements.
d. Replacements.

Question 2 Bank Reconciliation

Select One From (A) Or (B)

A) Hayat has received his bank pass sheets for the year to 31 st October 2020. At the date, his
balance at the bank amounted to Br 14,130 whereas his own cash book showed a balance of
Br 47,330. His accountant investigated the matter, and discovered the following
discrepancies:
1. Bank charges of Br 60 had not been entered in the cash book.
2. Cheques drawn by Hay and totaling Br. 450 had not yet been presented to the bank.’
3. Hayat had not entered receipts of Br 530 in his cash book.
4. The bank had not credited Hay with receipts of Br 1,970 paid into the bank on 31 st October
2020.
5. Standing order payments amounting to Br 1,240 had not been entered in the cash book.
6. Hayat had entered a payment of Br 560 in his cash book as Br 650.
7. A cheque received for Br 300 from a debtor had been returned by the bank marked “refer to
drawer”, but this had not been written back in the cash book.
8. Hayat had brought down his opening cash book balance of Br 6,585 as a debit balance
instead of as a credit balance.
9. An old cheque payment amounting to Br. 880 had been written back in the cash book, but the
bank had already honoured it.
10. Some of Hayat customers had paid to settle their debts by direct debit. Unfortunately, the
bank had credited some direct debits amounting to Br 16,650 to another customer’s account.
Required:
(i) Prepare a statement showing Hayat adjusted cash book balance as at 31st October 2020.
(ii) Prepare a bank reconciliation statement as at 31st October 2020.
B) Pointer PLC has the data required to reconcile the bank statement as of April, 30, 2012
have been taken from various documents and records and are reproduced as follows

Cash at bank account depositors records:

Cash in bank account in April 1, 2012…………….. 7,817.40
Cash receipt journal during April 30, 2012………… 7,829.50
DUPLICATE DEPOSIT TICKETS:
Date and amount of each deposit in April: Bank statement for the Month of April:
Date Amount CK# Amount Date Amount CK# Amount
740 287.50 April 1, 2012 690.25 731 162.15
April 1, 2012 848.63 741 555.15 April 2, 2012 848.63 739 60.55
April 3, 2012 914.04 742 501.90 April 4, 2012 914.04 740 287.5
April 8, 2012 840.50 743 671.30 April 9, 2012 840.50 741 555.15
April 10, 2012 971.71 744 506.88 April 11, 2012 971.71 742 501.90
April 15, 2012 957.85 746 415.91 April 16, 2012 975.85 743 671.30
April 24,012 946.74 748 490.9 April 18, 2012 946.74 744 506.88
April 22, 2012 897.34 750 1,016.90 April 23, 2012 897.34 746 415.9
April 24, 2012 942.72 753 1,217.33 April 22, 2012 942.72 748 490.90
April 29, 2012 510.06 754 249.75 750 1,016.90
755 172.75 751 251.40
757 1,021.9 753 1,217.33
758 359.60 754 249.75
759 601.50 757 1,021.90
760 486.39 760 486.39
Bank statement for April
Balance as April 1, 2012 $ 7,947.20
Deposit and other Credit 10,652.77
Checks and other debits (8,232. 21)
Balance of April 30, 2012 $ 10,367.67
Bank memo Accompanying April Bank statement
Date Description Amount
April 4, 2012 Bank credit for note collected
Principal 2,500.00
Interest 125.00
April 24, 2012 Debit memo for checks returned because of NSF 311.8
April 30, 2012 Bank debit Memo service charge 24.5
POINTER PLC
BANK RECONCILIATION
FOR MARCH 31, 2012
Cash Balance according to bank statement . . . . . . . . . . . . . . . . . . . . ... . . . $ 7,947.20
Add: Outstanding deposit of June 30, not recorded by bank . . . . . . . . 690.25
Sub-total…………………………………………………………… $ 8,637.45
Deduct outstanding checks:
No. 731 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 162.50
No. 736 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345.94
No. 738 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251.4
No. 739 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60.55 820.05
Adjusted balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,817.40
Cash balance according to company’s records . . . . . . . . . . . . . . . . . . . . . $7,832.50
Deduct service charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.10
Adjusted balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,817.40
Instruction
1. Prepare Bank reconciliation April 30, 2012
2. Record necessary journal entry
Question 3
You have been asked by the financial manager to develop a short presentation on the LCNRV
method for inventory purposes. The financial manager needs to explain this method to the
president because it appears that a portion of the company's inventory has declined in value.
Instructions: The financial manager asks you to answer the following questions.
a. What is the purpose of the LCNRV method?
b. What is meant by “Net Realizable Value”?
c. Do you apply the LCNRV method to each individual item, to a category, or to the total of the
inventory? Explain.
d. What are the potential disadvantages of the LCNRV method? The purpose of using the
LCNRV

Question 4 Depreciation
Select One From (A) and (B)
A.
GO Betoch Bank purchased a special Copier machine. The machine, costs Birr 340,000, and
was estimated to have a useful life of 10 years. The estimated residual value is Birr 40,000. After
two years of service it became evident that the copier machine's total useful life is 7 years instead
of 10 years. Depreciation was recorded for two years based on straight line method. There is no
change on estimated residual value. Based on this information, what is the new annual
depreciation charge on the basis of the revised estimated useful life?

B.
On January 1, 2017, a machine was purchased for Birr 90,000. The machine has an estimated
residual value of birr 6,000 and an estimated useful life of 5 years. The machine can operate for
100,000 hours before it needs to be replaced. The company closed its books on December 31 and
operates the machine as follows: 2017, 20,000 hours; 2018, 25,000 hours; 2019, 15,000 hours;
2020, 30,000 hours; and 2021, 10,000 hours.
Instructions
a. Compute the annual depreciation charges over the machine's life assuming a December 31
year-end for each of the following depreciation methods.
1. Straight-line method.
2. Activity method.
3. Sum-of-the-years'-digits method.
4. Double-declining-balance method.

Question 5

A company has a long-lived asset with a carrying value of $120,000, expected future cash flows
of $130,000, present value of expected future cash flows of $100,000, and a market value of
$105,000.

What amount of impairment loss, if any, should be reported?

Question 6

Seven years ago, Oro Electronics purchased a plant costing Birr 2,100,000, having an
estimated useful life of ten years. This plant could be sold for scrap value of Birr 150,000. It is
the company’s policy to depreciate assets using the straight-line method. The company carried
out an impairment test and found that the could generate the following cash flows over its
remaining useful life: Birr 700,000, Birr 600,000, and Birr 400,000. The company discovered
that the plant could be sold for a fair value of Birr 1,340,000 and it is estimated that it would cost
Birr 50,000 to sell. What is the value at reporting date? Assume a relevant discount rate of 10%.

Question 7
The management of Petro Inc. was discussing whether certain equipment should be written off
as a charge to current operations because of obsolescence. This equipment has a cost of Br.
900,000 with depreciation to date of $400,000 as of December 31, 2017. On December 31, 2017,
management projected its future net cash flows from this equipment to be $300,000 and its fair
value to be $230,000. The company intends to use this equipment in the future.
1. Prepare the journal entry (if any) to record the impairment at December 31, 2017.
2. Where should the gain or loss (if any) on the write-down be reported in the income
statement?
3. At December 31, 2018, the equipment’s fair value increased to $260,000. Prepare the journal
entry (if any) to record this increase in fair value.
4. What accounting issues did management face in accounting for this impairment?

Question 8

A.
Telepath acquired an item of plant at a cost of $800,000 on 1 April 2010 that is used to produce
and package pharmaceutical pills. The plant had an estimated residual value of $50,000 and an
estimated life of five years, neither of which has changed. Telepath uses straight-line
depreciation. On 31 March 2012, Telepath was informed by a major customer (who buys
products produced by the plant) that it would no longer be placing orders with Telepath. Even
before this information was known, Telepath had been having difficulty finding work for this
plant. It now estimates that net cash inflows earned from the plant for the next three years will
be:
Year ended: $000
31 March 2013 220
31 March 2014 180
31 March 2015 170
On 31 March 2015, the plant is still expected to be sold for its estimated realizable value.
Telepath has confirmed that there is no market in which to sell the plant at 31 March 2012.
Telepath’s cost of capital is 10%, and the following values should be used:
Value of $1 at: $000
End of year 1 0·91
End of year 2 0·83
End of year 3 0.75
Required: Calculate the carrying amounts of the assets as at 31 March 2012 after applying any
impairment losses.
B.

At 30 June 2014, a decision was taken to classify property as held for sale (criteria are met). The
property was originally acquired for Birr 400,000. Cumulative depreciation to 30 June 2014
amounted to Birr 110,000. Recoverable amount was determined at that date to be Birr. 255,000.
Upon re-classification as held for sale (June 30, 2014), the Fair Value less cost to sell was
assessed at Br. 250,000. At the next reporting date, 30 June 2015, the Fair value less cost to sell
is reassessed at Birr 265,000.

Requirement
a. What the carrying value of the property immediately before re-classification is as held for
sale on 30 June 2014?
b. Impairment loss just before reclassification
c. What the required accounting entries are in 2014 in respect of the re-classification of the
asset as held for sale?
d. Impairment loss under IFRS 5
e. How much gain should be reported at 30 June 2015