FINM7409 Tutorial 3

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FINM7409

Tutorial 3

AE3.3

Provide answers in the shaded cells.

a)

Jan

Feb

Mar

Apr

Rent expense

$100

$100

$150

Prepaid Rent - start of month

$300

$200

$100

Prepaid Rent - end of month

$200

$100

$750

Rent paid

$0

$0

$900

b)

Jan

Feb

Mar

Apr

Wage expense

$100

$100

$150

Wages payable - start of month

$300

$200

$100

Wages payable - end of month

$200

$100

$350

Wages paid

$250

$0

$0

Note: In your textbook, there is an error in part (b) above:

1 The wages paid in February should be $250 instead of $0 and and for April they should be $0.

1 Wages payable at the end of April should be $350.


AE3.4

a)

It is three months before the end of the financial year, and Leo Murphy, owner and operator of Murph’s Trucking, has just purchased a new truck for his cattle and hay hauling business.

Costs incurred are as indicated below:

Dealer charge

$240,000

Installation of GPS, safety devices, etc.

$3,360

Delivery chargers

$2,400

Import taxes

$4,800

Fuel cost (first fill-up)

$500

Leo estimated a useful life for the truck of 10 years, at which time it could be sold for $20,000 he     reckons. His plan, however, is to upgrade to a new model in two years. He estimated resale value in two years to be $100,000.

Calculate Murph’s straight-line depreciation expense for the current year.

b)

It is now the end of the next financial year after purchase of the new truck. That is, Murph’s been          using the new truck for 15 months. Nothing’s changed, but now Leo wants to see how the truck will be shown on the balance sheet.

Show how Murph’s truck will appear on the balance sheet after 15 months’ use. Remember that he is using straight-line depreciation.

AE3.5

Following on from Application Exercise AE 3.4 above, Leo is expanding his business and has just bought another truck (see details below).

Dealer charge

$290,000

Installation of GPS, safety devices, etc.

$4,060

Delivery charges

$2,900

Import taxes

$5,800

Leo has been talking to some of his trucking buddies, and has been advised that he should be using       “km driven” as the basis for determining his depreciation expense. Leo estimates that he’ll get 500,000 km from the truck, at which time he’ll be able to sell it for $10,000.

1)   Calculate the depreciation charge for 80,000 km of use in year 1.

2)   Calculate the depreciation charge for 100,000 km of use in year 2.

3)   Show how Murph’s truck will appear on the balance sheet at the end of year 2.


AE3.8

Spratley Ltd is a builders’ merchant. On 1 September, the business had 20 tonnes of sand in stock at a cost of $18 per tonne, a total cost of $360. During the first week in September, the business purchased the following amounts of sand:

September

Tonnes

Cost per tonne

2

48

$20

4

15

$24

6

10

$25

On 7th September, the business sold 60 tonnes of sand to a local builder.

Calculate:

a)    The cost of goods sold based on perpetual inventory and FIFO cost allocation.

b)   The closing inventory based on periodic inventory and weighted average cost allocation.

AE3.9

Calculate depreciation expense for each asset group for the year ended 30 June 2020.

Asset

Delivery trucks

Office equipment

Computers

Building

Acquisition cost

$250,000

$16,000

$14,200

$300,000

Useful life/units (km for

trucks, years for rest)

200,000

10

3

30

Estimate residual value

$45,000

$3,000

$2,000

$45,000

Depreciation method

Units of production#

Straight-line

Reducing-

balance*

Straight-

line

Depreciation expense

$?

$?

$?

$?

# The trucks were driven 24,500km during the year.

* The company uses an approximated reducing-balance rate of 60%. One year of depreciation has been recorded prior to the current year.


AE3. 11

The following is a statement of financial position of WW Associates as at 31 December 2019.





2022-08-31