MGT101 Financial Accounting Assignment 2 Solution Spring Semester June 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

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Calculate the profit or loss on disposal of machinery.

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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

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

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6. Current liabilities:

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

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

=500,000