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)

————————————————————————————————————————————————————–

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

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

=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