Question 4 NIXON
Nixon is a retailer and on 1 January his assets were
$
Cash in hand 343
Inventory 458
Furniture and fittings 198
Receivables
Smith 18
Harvey 39
Moon 26
His liabilities were to the following suppliers
$
Rich 12
Max 21
His transactions during January were
$
2 January Goods sold to Harvey on credit 124
5 January Paid wages 12
Bought goods on credit from Rich 150
7 January Smith settled his account
9 January Paid the amount owing to Max
11 January Cash sales 64
14 January Paid wages 14
Bought goods for cash 75
15 January Paid Rich for balance owing on his account
20 January Bought for cash a new office desk 32
21 January Paid wages 17
Cash sales 110
23 January Paid office expenses 3
Harvey paid on account 25
28 January Cash sales 84
Paid wages 15
31 January Cash sales 30
Inventory at cost was 374
Required:
(a) Write up and close the relevant ledger accounts. (18 marks)
(b) Extract a trial balance at 31 January. (4 marks)
(c) Prepare an income statement for the month ended 31 January and a statement of financial
position at that date. (8 marks)
(30 marks)
Question 6 DINO
Dino started a business on 1 January 2004.
In the accounting year to 31 December 2004:
A new warehouse was acquired on 31 March 2004. On 21 April 2004, Dino received a water rates demand
for $1,000 for the 12 months to 31 March 2005. Payment was made, in full, on 30 April 2004.
In the accounting year to 31 December 2005:
An office extension was built. The water rates demand for the 12 months to 31 March 2006 was $1,600.
Dino paid the full amount on 1 June 2005.
Required:
(a) Write up the water rates ledger account for EACH of the two accounting years.
(6 marks)
(b) Assuming now that payments were made annually in arrears (ie $1,000 on 31 March 2005 and
$1,600 on 31 March 2006), write up the water rates ledger account for each of the two
accounting years. (4 marks)
(10 marks)
ACCRUALS ACCG
Expense…
…
But not yet…
The following information relates to items 1.3 – 1.5.
The rent, rates and insurance account in the books of Mahler for the year ended 30 June 2004 was as follows.
$
Opening balances at 1 July 2003
Rent accrued 200
Rates prepaid 150
Insurance prepaid 180
Payments made during the year ended 30 June 2004 were as follows.
$
10 August 2003 Rent, three months to 31 July 2003 300
26 October 2003 Insurance, one year to 31 October 2004 600
2 November 2003 Rates, six months to 31 March 2004 350
12 December 2003 Rent, four months to 30 November 2003 400
17 April 2004 Rent, four months to 31 March 2004 400
9 May 2004 Rates, six months to 30 September 2004 350
1.3 Which of the following is the correct treatment for Mahler’s rent?
Prepaid/(accrued)Transfer to income and expenditure
at 30 June 2004account for year to 30 June 2004
$ $
A (200) 400
B (300) 1,200
C 200 1,200
D 300 800
1.4 Which of the following is a correct treatment for Mahler’s rates?
Prepaid/(accrued)Transfer to income and expenditure
at 30 June 2004account for year to 30 June 2004
$ $
A (175) 850
B (150) 700
C 150 850
D 175 675
1.5 Which of the following is a correct treatment for Mahler’s insurance?
Prepaid/(accrued)Transfer to income and expenditure
at 30 June 2004account for year to 30 June 2004
$ $
A 200 580
B 180 780
C (200) 600
D (800) 580
The following information relates to items 2.9 and 2.10.
A company owns three properties which it rents out. Rent amounts to $600 per quarter per property due on
31 January, 30 April, 31 July and 31 October. The properties have been occupied throughout the year to 31
December 2004. Two tenants pay in advance and one in arrears.
2.9 At 31 December 2004 the balances arising in respect of rent receivable will be
Deferred income Accrued income
A $1,200 $600
B $600 $1,200
C $400 $400
D $200 $800
2.10 Rent receivable in the income and expenditure account for the year to 31 December 2004 will be
A $1,800
B $2,400
C $6,600
D $7,200
IAS 16 Property, Plant and Equipment (PPE)
- tangible asset
- used for production or admin purposes
- for more than one accounting period
Initial recognition at cost…
…INCL expenditure DIRECTLY ATTRIBUTABLE to bringing a PPE item to a condition when it’s ready
for use intended by management (CAPEX)
…EXCL. correction of errors, advertising, admin., training
Subsequent expenditure
CAPEX OPEX
- Improvement, modernization, upgrade, - Repair, maintenance
overhaul
1 IAS 16 Property, Plant and Equipment requires an asset to be measured at cost on its original
recognition in the financial statements. EW used its own staff, assisted by contractors when required,
to construct a new warehouse for its own use.
Identify whether the costs listed below should be capitalised or expensed.
Capitalise Expense
Clearance of the site prior to commencement of construction
Professional surveyor fees for managing the construction work
EW’s own staff wages for time spent working on construction
A proportion of EW’s administration costs, based on staff time spent
Subsequent Measurement: 2 models…
Cost - Accumulated Depreciation (Acct Depn) Revaluation
DEPRECIATION:
REDUCTION IN DEPRECIABLE AMOUNT…
…Cost - Residual Value (=Scrap Value)
ON A SYSTEMATIC BASIS (=Depn method)
OVER USEFUL LIFE.
IAS 16: at least once per year review the correctness of these ACCG ESTIMASTES, i.e. any change should
be adjusted PROSPECXTIVELY, without re-stating previously published fin statements.
DEPN STARTS: …when a PPE item is ready for intended use.
Question 8 ALEXANDER
Alexander purchased a van for $800 cash. He estimates that its useful life is four years and its scrap value
equals $70.
Required:
Calculate the annual depreciation charge on
(a) the straight line method (2 marks)
(b) the reducing balance method at the rate of 45%. (4 marks)
(6 marks)
Question 9 POPOV
Popov provides depreciation on plant at 10% per annum on cost at the year end on a straight-line basis. On 1
January 2004 plant at cost was $5,000; accumulated depreciation to date was $3,000. On 1 July 2004 he sold
a machine for $1,500 which had cost $2,000 on 1 July 2001.
Required:
Prepare relevant ledger accounts for the year to 31 December 2004. (6 marks)
