MGT101 Financial Accounting Assignment 2 Solution Spring 2013

A company, whose accounting year is calendar year, purchased machinery inclusive of installation charges amounting to Rs. 250,000 on 1st January 2008.

On 1st October 2012, the machinery has become obsolete and is sold for Rs. 60,140.

Company charged the deprecation @20% per annum on plant and machinery. It is the policy of the company to charge the deprecation of all fixed assets on the basis of use under diminishing balance method.

Required:

1. Prepare depreciation schedule for five years showing the four columns i.e. Years, Depreciation expense, Accumulated depreciation and Book value.

2. Calculate the profit or loss on disposal of machinery.

Solution:

  • Prepare depreciation schedule for five years showing the four columns i.e. Years, Depreciation expense, Accumulated depreciation and Book value.

Years

Depreciation expense

Accumulated depreciation

Book value.

01-January-2008

250,000

31-December-2008

50,000

50,000

200,000

31-December-2009

40,000

90,000

160,000

31-December-2010

32,000

122,000

128,000

31-December-2011

25,600

147,600

102,400

31-December-2012

15,360

162,960

87,040

 

  • Calculate the profit or loss on disposal of machinery.


Book value after five years Rs. 87,040

Sale price Rs. 60,140

Profit on sale Rs. 26,900(87,040– 60,140)

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QUESTION-02

Required:

Based on the above information, you are required to calculate the following for the period ended on 31

st December 2012:

1. Net sales

2. Gross purchases

3. Administration expenses

4. Financial expenses

5. Current assets

6. Current liabilities

Following information is available of a business concern for the year of 2012.

 

Items

Rs.
Gross sales

 

900,000

 

Return inwards

 

50,000

 

Return outwards

 

40,000

 

Net purchases

 

950,000

 

Gross loss

 

200,000

 

Advertising expenses

 

200,000

 

Distribution expenses

 

100,000

 

Salaries of clerical staff

 

300,000

 

Office rent

 

250,000

 

Bank charges

 

50,000

 

Long term loan taken from bank on 1

st January @ 12% per annum

500,000

 

Cash

 

90,000

 

Accounts receivable

 

60,000

 

Plant and machinery

 

300,000

 

Building

 

900,000

 

Accounts payable

 

35,000

 

Short term borrowings

 

25,000

 

Solution:

1.      Net sales:

=Sales-Sales Return

=900,000 – 50,000

=850,000

2.      Gross purchases:

=Net Purchase + Purchase Return

=950,000 + 40,000

=990,000

3.      Administration expenses:

=Salaries of clerical staff+ Office rent

=300,000 + 250,000

=550,000

4.      Financial expenses:

= Long term loan taken from bank on 1st January @ 12% per annum + Bank charges

=60,000 + 50,000

=110,000

5.      Current Assets:

=Cash + Accounts Receivable

=90,000 + 60,000

=150,000

6.      Current liabilities:

=Loan (Long Term + Short Term) + Accounts Payable

= 465,000(440,000+25,000) +35,000

=500,000

 

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