MGT101 Financial Accounting Assignment 2 Solution Spring 15th June 2013

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

st 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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•  
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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)

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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

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6.      Current liabilities:

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

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

=500,000