Non-current Assets – Page 3

MA – L2 – Q16 – Budgetary control

Prepare a budgeted profit or loss statement for Kofi Limited for Q1, focusing on sales, inventory, and expenses.

Question

Kofi Limited retails fertilizer to farmers in Ghana. The company has approached its Bankers to provide funding for next year’s operations and a three-month master budget has been requested for review by the bankers.
You have been approached by the management as a consultant to prepare the 1st quarter budget for the banker’s consideration for its next year’s operations.
End of Accounting year December 20X9

	GH¢
Debtors	23,000
Bank balance	55,000
Non-current asset at cost	698,000
Provision for depreciation balance	98,000
Creditors Balance	48,000
Operating expenses for the month December	60,000
Sales for the month of December 20X9	400,000
December Ending inventory	20,000
Retained earnings	120,000

The following additional information was also provided to assist your work:
(i) Depreciation is provided at the rate of 5% on cost of non-current assets.
(ii) Closing inventory is expected to increase by GH¢2,000 in January from December levels. This is expected to increase by the same figure in February from the projected figure in January. It is expected that in March closing inventory is desired to be GH¢26,000.
(iii) The company makes a profit of 25% on its sales.
(iv) Operating expenses are expected to increase by 10% from that of December, and this is projected to increase at the same growth rate to March.
(v) Sales are projected to grow by 15% from December until March.
(vi) The Debtors figure is desired to be proportional to the sales values.
(vii) Creditors value for the three months are expected to be as follows: January – GH¢50,000; February – GH¢46,000; and in March – GH¢52,000.

You are required as a consultant for Kofi Company Limited to prepare for their Bankers:
(a) The budgeted statement of profit or loss for the three months.

(b) The budgeted statement of financial position for the three months.

Answer

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Tags: Budgeting, Cash Balance, Creditors, Debtors, Depreciation, Financial Planning, Financial Position, Inventory, Non-current Assets, Retained Earnings
Level: Level 2

Topic: Budgetary Control, Cash budgets and master budgets

FA – L1 – Q26 – Non-current assets and depreciation

Calculate the cost of machinery including delivery and modification costs, excluding warranty, for ledger entry.

Question

(1) A company purchased some heavy machinery. The invoice for the machinery showed the following items:

Description	GH¢000
Cost of machinery	46,000
Cost of delivery	900
Cost of 12-month warranty on the machinery	1,600
Total amount payable	48,500

In addition, the company incurred GH¢3.4 million in making modifications to its factory so that the heavy machinery could be installed.
What should be the cost of the machinery in the company’s machinery account in the ledger?

(2)

A business acquired new premises at a cost of GH¢400 million on 1 January 20X9. In the period to the year end of 31 March 20X9 the following further costs were incurred:

Description	GH¢000
Costs of initial adaptation of the building	12,000
Legal costs relating to the purchase	2,500
Monthly cleaning contract	3,400
Cost of air conditioning unit necessary for machinery to be used	2,800
Cost of machinery	12,300

What amount should appear as the cost of premises in the company’s statement of financial position at 31 March 20X9?

(3)

The plant and machinery account for a company for the year ended 30 June 20X9 is as follows:

20X8		GH¢	20X9		GH¢
1 July	Balance	960,000	31 March	Transfer to disposal account	80,000
31 Dec	Cash: purchase of machines	200,000	30 June	Balance	1,080,000
		1,160,000			1,160,000

The company’s policy is to charge depreciation on plant and machinery at 25% each year on the straight-line basis, with proportionate charges in the year of acquisition and the year of disposal. None of the assets held at 1 July 20X8 was more than three years old.
What is the charge for depreciation of plant and machinery for the year ended 30 June 20X9?

(4)

A motor car was purchased in May 20X6 for GH¢7.8 million. The accounting policy is depreciation at 20% straight line on the cost of the assets in use at the year end. The car was traded in for a replacement vehicle purchased in July 20X9 with the agreed part exchange value being GH¢2.4 million. The company’s year-end is 31 December.

What was the profit or loss on disposal?

Answer

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Tags: Depreciation, Disposal, Financial accounting, Motor car, Non-current Assets, Profit or Loss, Straight-line Method
Level: Level 1

Topic: Non-current assets and depreciation

FA – L1 – Q25 – Non-current assets and depreciation

Adjust plant and equipment and accumulated depreciation accounts for Akosua Pharmaceuticals Limited for errors in 20X9 financial statements.

Question

The draft statement of financial position of Akosua Pharmaceuticals Limited as on December 31, 20X9, depicts the following:

Description	GH¢
Plant and equipment – Cost	12,387,060
Less: Accumulated Depreciation	(4,792,540)
	7,594,520

On reviewing the accounts of the business, its auditor found that the records have been correctly maintained except for the following events:
(i) On January 17, 20X9, a contract was signed for the purchase of a packaging machine from Kofi Enterprises Limited for GH¢1,125,000 which is to be delivered on July 17, 20Y0. The company paid an advance of GH¢450,000 on the signing of the contract and the balance was to be paid on delivery of the machine. The advance was debited to the plant and equipment account.
(ii) Installation of a production machine was completed on January 21, 20X9. The cost of the machine of GH¢2,700,000 was debited to the plant and equipment account. The cost of installation amounting to GH¢300,000 had been debited to a repairs account.

Depreciation is charged on a reducing balance method at 10% per annum. Depreciation on new assets commences in the month in which the asset is acquired.
The depreciation expense for the year 20X9 have been correctly calculated and recorded except for the impact of errors discussed above.

Required
Determine the correct balances as at December 31, 20X9 by recording appropriate adjustments in the following accounts:
(a) Plant and equipment
(b) Accumulated depreciation – plant and equipment

Answer

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Tags: Accounting errors, Adjustments, Depreciation, Financial Statements, Ledger accounts, Non-current Assets, Plant and equipment, Reducing Balance Method
Level: Level 1

Topic: Non-current assets and depreciation

FA – L1 – Q24 – Non-current assets and depreciation

Prepare vehicle, accumulated depreciation, and depreciation accounts for Ama's car leasing business for 20X6 to 20X9.

Question

Ama leases out German sports cars on a short-term basis. She started business on 1 January 20X6 and has decided to depreciate the cars on a straight line basis at 25% per annum on cost at the year-end. During the years 20X6 to 20X9 the following purchases took place:

Year	Purchase Details	Cost (GH¢000)
20X6	Acquired 20 Porsche 924 Turbos at a cost of GH¢18,600,000 each	372,000
20X7	Purchased 6 Porsches for a total cost of GH¢108,600,000	108,600
20X8	Purchased a further two cars costing GH¢19,800,000 each	39,600
20X9	Purchased 15 cars for GH¢21,000,000 each	315,000

Ama prepares accounts to 31 December each year.

Required
Prepare a vehicle account, an accumulated depreciation account, and a depreciation account for the years 20X6 to 20X9.

Answer

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Tags: Accumulated Depreciation, Asset management, Depreciation, Financial accounting, Ledger accounts, Non-current Assets, Straight-line Method, Vehicle account
Level: Level 1

Topic: Non-current assets and depreciation

FA – L1 – Q23 – Non-current assets and depreciation

Prepare ledger accounts for lorries, disposals, and depreciation for Akosua Transport Limited for the year to 30 April 20X9.

Question

Akosua Transport Limited is a haulage contractor. At 1 May 20X8 the company had three lorries, details of which are as follows:

Lorry registration number	Date purchased	Cost (GH¢000)
KWE 1	1 July 20X5	16,000
AMA 2	1 February 20X7	21,000
EFI 3	1 April 20X8	31,000

During the year to 30 April 20X9, the following lorry transactions took place:
(a) KWE 1 was sold on 31 July 20X8 for GH¢3 million on cash terms. On 1 August 20X8 Akosua Transport Limited replaced it with a new lorry, registration number NAA 4 for which he paid GH¢35 million in cash.
(b) On 1 December 20X8, the new lorry (NAA 4) was involved in a major accident, and as a result was completely written off. The company was able to agree a claim with his insurance company, and on 31 December 20X8 he received GH¢30 million from the insurance company. On 1 January 20X9 he bought another lorry (registration number KOF 5) for GH¢41 million.
(c) During March 20X9, the company decided to replace the lorry bought on 1 April 20X8 (registration number EFI 3) with a new lorry. It was delivered on 1 April 20X9 (registration number ADU 6). The company agreed a purchase price of GH¢26 million for the new lorry, the terms of which were GH¢20 million in part-exchange for the old lorry and the balance to be paid immediately in cash.

Notes:
(1) Akosua Transport Limited uses the straight-line method of depreciation.
(2) The lorries are depreciated over a five-year period by which time they are assumed to have an exchange value of GH¢1 million each.
(3) A full year’s depreciation is charged in the year of acquisition, but no depreciation is charged if a lorry is bought and sold or otherwise disposed of within the same financial year.
(4) Akosua Transport Limited does not keep separate ledger accounts for each individual lorry.

Required
(a) Write up the following accounts for the year to 30 April 20X9:
(i) lorries account
(ii) lorries disposal account
(iii) allowance for depreciation on lorries account.

(b) Show how the lorries account and the allowance for depreciation account would be presented in Akosua Transport Limited’s statement of financial position as at 30 April 20X9.

Answer

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Tags: Depreciation, Financial Reporting, Non-current Assets, Statement of Financial Position, Straight-line Method, Transport Industry
Level: Level 1

Topic: Non-current assets and depreciation

FA – L1 – Q22 – Non-current assets and depreciation

Prepare Patowato Motors’ vehicle accounts for 20X6-20X9 and explain why revaluing some vehicles is unethical

Question

Patowato Motors Limited leases second-hand German sports cars for special occasions. It started business on 1 January 20X6 and has decided to depreciate the cars on a straight line basis at 25% per annum on cost at the year-end. During the years 20X6 to 20X9 the following purchases and sales of cars took place.

20X6 Acquired 20 Porsche 928 Turbos at a cost of GH₵18.6 million each
20X7 Purchased 6 Porsche vehicles for a total cost of GH₵108.6 million.
20X8 Traded-in two of the cars acquired in 20X6 and received an allowance of GH₵9 million each which was set against the purchase of a further two cars costing GH₵19.8 million each
20X9 Replaced 15 cars purchased in 20X6 with another 15, each of which cost GH₵21 million. A trade-in allowance totalling GH₵48 million was received

Patowato Motors Limited prepares accounts to 31 December each year.
The finance director of Patowato Motors Limited, who is a qualified accountant, intends to apply the revaluation model to those of the company’s sports cars that appreciate in value. He intends to recognise revaluation increases in profit or loss and has told colleagues that this will boost the directors’ bonuses.

Required
(a) Prepare a vehicle account, an accumulated depreciation account, a depreciation account and a disposals account for the years 20X6 to 20X9.
(b) Explain why the finance director’s suggestion to revalue some vehicles is unethical

Answer

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Tags: Depreciation, Disposals, IAS 16, Non-current Assets, Revaluation Ethics, Straight-line Method, Vehicle Accounts
Level: Level 1

Topic: Non-current assets and depreciation

FA – L1 – Q21 – Non-current assets and depreciation

Prepare Tabori Construction’s plant and machinery accounts for 20X8-20X9, correcting a past error.

Question

Tabori Construction, a sole proprietorship, recognises depreciation on plant and machinery at 20% per annum reducing balance. On July 1, 20X8 the balances on the plant and machinery and accumulated depreciation accounts were GH₵712,000 and GH₵240,000 respectively. Depreciation is recognised from the month of purchase. During 20X8-20X9, the auditors discovered that a repair which cost GH₵25,000 and incurred on October 1, 20X6 had been capitalised incorrectly. It was decided to correct this mistake while finalising the accounts for the year ended June 30, 20X9. Only one machine was purchased during the year ended June 30, 20X9 costing GH₵60,000. The machine was received in the factory on October 1, 20X8 and was installed on January 1, 20X9.

Required
Prepare the plant and machinery account and accumulated depreciation account for the year ended June 30, 20X9. (Show all workings)

Answer

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Tags: Correction of Errors, Depreciation, Non-current Assets, Plant and Machinery, Reducing Balance Method
Level: Level 1

Topic: Non-current assets and depreciation

FA – L1 – Q20 – Non-current assets and depreciation

Record Sophia’s machine transactions for 20X6-20X8 and show financial position extracts.

Question

Since she commenced business on 1 January 20X6, Sophia has purchased for cash the following three machines.

Machine	Date of purchase	Cost (GH₵)	Rate of depreciation
Machine 1	20 January 20X6	4,200	25%
Machine 2	17 April 20X7	5,000	30%
Machine 3	11 July 20X8	3,500	35%

Sophia’s policy is to charge a full year’s depreciation in the year of purchase irrespective of the date of purchase. The reducing balance method is used to calculate depreciation. Accounts are prepared to 31 December each year.

Required
(a) Prepare the machinery account and accumulated depreciation account showing the charge to the depreciation account for each year.
(b) Show the relevant statement of financial position extracts for each year.

Answer

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Tags: Accumulated Depreciation, Depreciation, Financial Position, Machinery Account, Non-current Assets, Reducing Balance Method
Level: Level 1

Topic: Non-current assets and depreciation

FA – L1 – Q19 – Non-current assets and depreciation

Record Martin’s machine transactions for 20X8-20X9 and show financial position extracts.

Question

Martin bought a machine for GH₵10,000 on 1 January 20X8. He estimates a useful life of 8 years and a residual value of GH₵800. Depreciation is to be calculated on a straight-line basis.

Required:
(a) Write up for 20X8 and 20X9 the
(i) Machinery account (3 marks)
(ii) Accumulated depreciation account (3 marks)
(iii) Depreciation expense account (2 marks).
(b) Show how the machine would be presented in the statement of financial positions as at 31 December 20X8 and 31 December 20X9. (2 marks)

Answer

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Tags: Accumulated Depreciation, Depreciation, Financial Position, Machinery Account, Non-current Assets, Straight-line Method
Level: Level 1

Topic: Non-current assets and depreciation

FA – L1 – Q18 – Non-current assets and depreciation

Calculate annual depreciation for Avery’s van using straight-line and reducing balance methods.

Question

Avery purchased a van for GH₵800 cash. He estimates that in four years it will have a scrap value of GH₵104.

Required
(a) Calculate the annual depreciation charge on the straight-line method.
(b) Calculate the annual depreciation charge on the reducing instalment method (you will need to calculate the rate).

Answer

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Tags: Depreciation, Non-current Assets, Reducing Balance Method, Straight-line Method, Van
Level: Level 1

Topic: Non-current assets and depreciation

Tag (SQ): Non-current Assets

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MA – L2 – Q16 – Budgetary control

Prepare a budgeted profit or loss statement for Kofi Limited for Q1, focusing on sales, inventory, and expenses.

FA – L1 – Q26 – Non-current assets and depreciation

Calculate the cost of machinery including delivery and modification costs, excluding warranty, for ledger entry.

FA – L1 – Q25 – Non-current assets and depreciation

Adjust plant and equipment and accumulated depreciation accounts for Akosua Pharmaceuticals Limited for errors in 20X9 financial statements.

FA – L1 – Q24 – Non-current assets and depreciation

Prepare vehicle, accumulated depreciation, and depreciation accounts for Ama's car leasing business for 20X6 to 20X9.

FA – L1 – Q23 – Non-current assets and depreciation

Prepare ledger accounts for lorries, disposals, and depreciation for Akosua Transport Limited for the year to 30 April 20X9.

FA – L1 – Q22 – Non-current assets and depreciation

Prepare Patowato Motors’ vehicle accounts for 20X6-20X9 and explain why revaluing some vehicles is unethical

FA – L1 – Q21 – Non-current assets and depreciation

Prepare Tabori Construction’s plant and machinery accounts for 20X8-20X9, correcting a past error.

FA – L1 – Q20 – Non-current assets and depreciation

Record Sophia’s machine transactions for 20X6-20X8 and show financial position extracts.

FA – L1 – Q19 – Non-current assets and depreciation

Record Martin’s machine transactions for 20X8-20X9 and show financial position extracts.

FA – L1 – Q18 – Non-current assets and depreciation

Calculate annual depreciation for Avery’s van using straight-line and reducing balance methods.

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Prepare a budgeted profit or loss statement for Kofi Limited for Q1, focusing on sales, inventory, and expenses.

You're reporting an error for "MA – L2 – Q16 – Budgetary control"

Calculate the cost of machinery including delivery and modification costs, excluding warranty, for ledger entry.

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Adjust plant and equipment and accumulated depreciation accounts for Akosua Pharmaceuticals Limited for errors in 20X9 financial statements.

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Prepare vehicle, accumulated depreciation, and depreciation accounts for Ama's car leasing business for 20X6 to 20X9.

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Prepare ledger accounts for lorries, disposals, and depreciation for Akosua Transport Limited for the year to 30 April 20X9.

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Prepare Patowato Motors’ vehicle accounts for 20X6-20X9 and explain why revaluing some vehicles is unethical

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Prepare Tabori Construction’s plant and machinery accounts for 20X8-20X9, correcting a past error.

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Record Sophia’s machine transactions for 20X6-20X8 and show financial position extracts.

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Record Martin’s machine transactions for 20X8-20X9 and show financial position extracts.

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Calculate annual depreciation for Avery’s van using straight-line and reducing balance methods.

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