Category: Dictionary (Accounting, Tax, Auditing)

A car was purchased by a newsagent business in June 20X3 for:

The business adopts a date of 31 December as its year end.

The car was traded in for a replacement vehicle in April 20X6 at an agreed value of $20,000.

It has been depreciated at 25% per annum on the reducing balance method, charging a full year’s depreciation in the year of purchase and none in the year of sale.

What was the profit or loss on disposal of the vehicle during the year ended December 20X6?

Answer

W bought a new printing machine. The cost of the machine was $120,000 . The installation costs were $7,500  and the employees received training on how to use the machine, at a cost of $1,000. Before using the machine to print customers’ orders, a test was undertaken and the paper and ink cost $1,500.

What should be the cost of the machine in the company’s statement of financial position?

Answer

A manufacturing company receives an invoice on 30 April 20X5 for work done on one of its machines. $6,375 of the cost is actually for a machine upgrade, which will improve efficiency. The accounts department do not notice and charge the whole amount to maintenance costs. Machinery is depreciated at 20% per annum on a straight-line basis, with a proportional charge in the years of acquisition and disposal. By what amount will the profit for the year to 31 December 20X5 be understated?

Answer

The profit will be understated

= cost less 8 months depreciation = 6,375 –  6,375 x 20% x 8/12

= 6,375 -850= $5,525

A business purchased a motor car on 1 July 20X6 for $5,000. It is to be depreciated at 10 per cent per year on the straight line basis, assuming a residual value at the end of ten years of $1,000, with a proportionate depreciation charge in the years of purchase and disposal.

The $5,000 cost was correctly entered in the cash book but posted to the debit of the motor vehicles repairs account.

How will the business profit for the year ended 31 December 20X6 be affected by the error?

Answer

A company bought a property four years ago on 1 January for $42,500. Since then property prices have risen substantially and the property has been revalued at $52,500.

The property was estimated as having a useful life of 20 years when it was purchased.

What is the balance on the revaluation surplus reported in the statement of financial position?

Answer

An asset register showed a carrying amount of $16,865. A non-current asset costing $3,750 had been sold for $1,000, making a loss on disposal of $313. No entries had been made in the asset register for this disposal.

What is the correct balance on the asset register?

Answer

Gain (loss) on disposal = proceeds – carrying amount of disposal

Carrying amount of disposal = proceeds – gain(loss)

A firm has the following transactions with its product R.

The firm uses periodic weighted average cost (AVCO) to value its inventory. What is the inventory value at the end of the year?

Answer

Price per unit under periodic weighted average cost

= Total cost /(opening quantity + total quantity received)

= ($0+$145 x 15 + $120 x 17 + $95 x 11)/(0+15+17+11)

= $122.33 per unit.

Valuation of closing inventory of 13 units

= (0+15+17+11–13–17) x $122.33 = 13 x $122.33

= $1,590.29

The inventory value for the financial statements of ABC Co for the year ended 31 December 20X7 was based on an inventory count on 9 January 20X8, which gave a total inventory value of $209,050.

Between 31 December and 9 January 20X8, the following transactions took place:

What adjusted figure should be included in the financial statements for inventories at 31 December 20X7?

Answer

The closing inventory of A amounted to $29,100 excluding the following two inventory lines:

1. 450 items which had cost $3 each. All were sold after the reporting period for $2 each, with selling expenses of $110 for the batch.
2. 250 different items which had cost $25 each. These items were found to be defective at the end of the reporting period. Rectification work after the statement of financial position amounted to $500, after which they were sold for $30 each, with selling expenses totaling $120.

Which of the following total figures should appear in the statement of financial position of A for inventory?

Answer

Inventories are measured at the lower of cost and net realisable value (NRV).

Net realisable value = estimated selling price in the ordinary course of business – the estimated costs of completion – the estimated costs necessary to make the sale

Note

Line 1

Cost = 450 x 3= 1,350

NRV =450 x $2– $110 = 790 (lower)

Line 2

Cost = 250 x 25= 6,250 (lower)

NRV =250 x $30– $120 – $500 = 6,880

An inventory record card shows the following details.

April    1.  40 units in stock at a cost of $20 per unit

6.   90 units purchased at a cost of $35 per unit

15.   50 units sold

22.   80 units purchased at a cost of $30 per unit

27.   75 units sold

What is the value of inventory at 30 April using the FIFO method?

Answer

Total purchase and beginning inventory in unit

= 40 +90+80 =210 units

Total sale in unit =50 + 75 = 125 units

Closing inventory in unit = 210-125= 85 units

Closing inventory in US$ = 2,575 (5 units @$35 and 80 units @$30)

XYZ Co sells three products – A, B and C. The following information was available at the year end.

Answer

Inventories are measured at the lower of cost and net realisable value (NRV).

Net realisable value = estimated selling price in the ordinary course of business – the estimated costs of completion – the estimated costs necessary to make the sale

You are preparing the financial statements for a business. The cost of the items in closing inventory is $10,469. This includes some items which cost $490 and which were damaged in transit. You have estimated that it will cost $90 to repair the items, and they can then be sold for $300.

What is the correct inventory valuation for inclusion in the financial statements?

Answer

Inventories are measured at the lower of cost and net realisable value (NRV).

Net realisable value = estimated selling price in the ordinary course of business – the estimated costs of completion – the estimated costs necessary to make the sale

  $

Original inventory valuation  ……..10,469 

Cost of damaged items   …………..(490)

NRV of damaged items (300 – 90)   210  

Correct inventory valuation     10,189 

The financial year of XYZ Co ended on 31 December 20X2. An inventory count on January 10 20X3 gave a total inventory value of $131,825.

The following transactions occurred between January 1 and January 10.

    $

Purchases of goods    1,975 

Sales of goods (gross profit margin 30% on sales)    3,750

Goods returned to a supplier    200

What inventory value should be included in XYZ Co’s financial statements at 31 December 20X2?

Answer

    $

Inventory count, 10 January 20X3 …………………….131,825 

Purchases since end of year …………………………….(1,975)

Cost of sales since end of year (3,750 x 70%) …….. 2,625

Purchase returns since end of year …………………….  200     

Inventory at 31 December 20X2…………………… 132,675

A company with an accounting date of 31 October carried out a physical check of inventory on 4 November 20X2, leading to an inventory value at cost at this date of $241,850.

Between 1 November 20X2 and 4 November 20X2 the following transactions took place:

1Goods costing $19,200 were received from suppliers.

2Goods that had cost $7,400 were sold for $10,000.

3A customer returned, in good condition, some goods which had been sold to him in October for $300 and which had cost $200.

4The company returned goods that had cost $900 in October to the supplier, and received a credit note for them.

What figure should appear in the company’s financial statements at 31 October 20X2 for closing inventory, based on this information?

Answer

  $

Inventory check balance ……………. 241,850

Less: goods from suppliers ………..(19,200)

Add: goods sold …………………………7,400

Less: goods returned ………………….(200)

Add: goods returned to supplier ….900

Closing Inventory  ……………………230,750 

A company values its inventory using the first in, first out (FIFO) method. At 1 May 20X5 the company had 1,200 engines in inventory, valued at $280 each.

During the year ended 30 April 20X6 the following transactions took place:

20X5

10 July   : Purchased 180 engines at $230 each

12 November :  Sold 500 engines for $320,000

20X6

13 February :  Purchased 220 engines at $300 each

14 April :   Sold 650 engines for $250,000

What is the value of the company’s closing inventory of engines at 30 April 20X6?

Answer

Total purchase and beginning inventory in unit

= 1,200 +180+ 220 =1,600 units

Total sale in unit =500 + 650 = 1,150 units

Closing inventory in unit = 1,600-1,150= 450 units

Closing inventory in US$ = ?

  $

50 @ $280  :  14,000 

180 @ $230:    41,400

220 @ $300 :    66,000

 Total…………121,400

The inventory value for the financial statements of ABC Co for the year ended 31 May 20X6 was based on a inventory count on 6 June 20X6, which gave a total inventory value of $190,000.

Between 31 May and 6 June 20X6, the following transactions took place.

  $

Purchase of goods   2,350

Sale of goods (mark up on cost at 15%)   2,990 

Goods returned by ABC Co to supplier    300 

What figure should be included in the financial statements for inventories at 31 May 20X6 ?

Answer Ending Inventory = 190,000 – 2,350 + 300 + (2,990 x 100/115) = $190,550

Sales (including sales tax) amounted to $6,903, and purchases (excluding sales tax) amounted to $ 4,500. What is the balance on the sales tax account, assuming all items are subject to sales tax at 14.5%?

Answer

Output sales tax 6,903 x 14.5 /114.5 = $874.18

Input sales tax 4,500 x 14.5% = $652.50

Balance on sales tax a/c (credit) = 874.18 – 652.50 = 221.68

A business commenced with capital in cash of $ 3,000. Inventory costing $2,400  plus sales tax is purchased on credit, and half is sold for $3,000 plus sales tax, the customer paying in cash at once. The sales tax rate is 10%.

What would the accounting equation after these transactions show?

Answer

  $

Assets

Opening cash ………………………………3,000

Cash received $(3,000 + 300 sales tax)…3,300

Closing cash………………………………6,300

Inventory $(2,400 – 1,200) …………….1,200

Total Assets…………………………….7,500  

Liabilities

Opening liabilities   –

Sales tax payable $(300 – 240)……………60

Trade payable $(2,400 + 240 sales tax)…2,640

Closing liabilities ……………………….2,700

Capital

Opening capital……………………………….3,000

Profit on sale of inventory $(3,000 – 1,200)..1,800

Closing capital………………………………4,800

At 31 December 20X5 XYZ’s trial balance included the following balances:

     $

Machinery at cost   …………………6,450 

Accumulated depreciation ………….4,480 

Inventory ……………………………2,882 

Trade receivables …………………..5,878 

Trade payables ……………………….3,920 

Bank overdraft …………………………843 

Cash at bank ………………… ………….80 

What is the value of XYZ’s current assets at 31 December 20X5?

Answer

Inventory………………………2,882

Trade receivables………………5,878

Cash at bank…………………….. 80 

 Total Current Asset……………8,840 

ABC Company has extracted the following list of balances from general ledger

at 31 July 20X9:

       $

Sales   64,636

Opening inventory   2,413

Purchases   35,740

Expenses   8,710

Non-current assets (carrying amount)   15,991

Receivables   7,937

Payables   3,467

Cash at bank   447

Capital   3,132

What is the total of the debit balances in ABC’s trial balance at 31 July 20X9?

Answer

The debits are as follows:

     $

Opening inventory      ………………2,413 

Purchases   ……………………………35,740  

Expenses   …………………… …….. 8,710 

Non-current assets  …………… 15,991

Receivables ………………………..7,937 

Cash at bank    ……………………   447 

Total Debit Balances ………… 71,238

The following totals appear in the day books for June 20X6.

  $

Sales day book   10,000

Purchases day book   5,000

Returns inwards day book   500

Returns outward day book   1,000

Opening and closing inventories are both $ 750.

What is the gross profit for June 20X6?

Answer

$   $

Sales   ………………………………………10,000

Returns inwards   ………………………(500)

Net sale…………………………………………………..9,500

Opening inventory  …………………. 750

Purchases ………………………………  5,000

Returns outwards  ……………….. (1,000)

Closing inventory  ………………… (750)

 Cost of sale……………………………………… (4,000)

Gross profit………………………………………   5,500

You are given the following information:

Receivables at 1 January 20X7   $ 30,000 

Receivables at 31 December 20X7      $ 15,000 

Total receipts during 20X7 (including cash sales of $ 10,000 )   $ 90,000 

What are sales on credit during 20X7?

Answer

Step 1:

Closing Account Receivable = opening AR + total sale – cash received

So, Total sale = closing AR – opening AR + cash received = 15,000-30,000+90,000=75,000

Step 2:

Total sale = cash sale + credit sale

So, Credit sale = total sale – cash sale = 75,000-10,000=65,000

Credit sales =$65,000

The net assets of David, a trader, at 1 January 20X4 amounted to $16,000. During the year to 31 December 20X4 David introduced a further $6,250 of capital and made drawings of $6,000. At 31 December 20X4 David’s net assets totaled $23,000.

What is David’s total profit or loss for the year ended 31 December 20X4?

Answer

Closing Capital  = opening capital + profit(loss) + Additional Capital – drawing

Profit(loss)= Closing Capital – opening capital- Additional Capital + drawing

Profit(loss)= 23,000-16,000-6,250+6,000 = $6,750