Accounting for managers sample Assignment

Question 1:

Part A: The inventory balance at the end of June 30^th, 2015 using FIFO method is provide in the table below:

Date	Particulars	Units (Purchase / Sales)	Units (Balance)	Amount ($)
2013	Purchase	Sales	Balance
Jul-13	Balance inventory at the beginning	200.00	1,000.00
Jul-13	Sales	120.00	80.00	1,080.00	400.00
Aug-13	Purchases	300.00	380.00	1,575.00	1,975.00
Aug-17	Sales	250.00	130.00	2,250.00	682.50
Sep-03	Purchases	450.00	580.00	2,385.00	3,067.50
Sep-10	Purchase returns	50.00	530.00	(265.00)	2,802.50
Sep-30	Sales	300.00	230.00	2,700.00	1,219.00
Oct-05	Purchases	300.00	530.00	1,620.00	2,839.00
Dec-08	Purchases	250.00	780.00	1,362.50	4,201.50
Dec-11	Sales	500.00	280.00	4,500.00	1,524.50
2014
Feb-14	Purchases	150.00	430.00	825.00	2,349.50
Mar-18	Purchases	100.00	530.00	560.00	2,909.50
Apr-30	Sales	300.00	230.00	2,700.00	1,275.00
May-02	Sales return	30.00	260.00	(270.00)	1,439.50
May-04	Purchases	250.00	510.00	1,425.00	2,864.50
Jun-06	Purchases	300.00	810.00	1,755.00	4,619.50
Jun-30	Sales	460.00	350.00	4,140.00	2,040.00

The inventory balance at the end of June 30, 2015 using Moving average method is given below in the table:

Date	Particulars	Units (Purchase / Sales)	Units (Balance)	Amount ($)
2013	Purchase	Sales	Balance
Jul-13	Balance inventory at the beginning	200.00	1,000.00
Jul-13	Sales	120.00	80.00	1,080.00	400.00
Aug-13	Purchases	300.00	380.00	1,575.00	1,975.00
Aug-17	Sales	250.00	130.00	2,250.00	675.66
Sep-03	Purchases	450.00	580.00	2,385.00	3,060.66
Sep-10	Purchase returns	50.00	530.00	263.85	2,796.81
Sep-30	Sales	300.00	230.00	2,700.00	1,213.71
Oct-05	Purchases	300.00	530.00	1,620.00	2,833.71
Dec-08	Purchases	250.00	780.00	1,362.50	4,196.21
Dec-11	Sales	500.00	280.00	4,500.00	1,506.33
2014
Feb-14	Purchases	150.00	430.00	825.00	2,331.33
Mar-18	Purchases	100.00	530.00	560.00	2,891.33
Apr-30	Sales	300.00	230.00	2,700.00	1,254.73
May-02	Sales return	30.00	260.00	(270.00)	1,418.39
May-04	Purchases	250.00	510.00	1,425.00	2,843.39
Jun-06	Purchases	300.00	810.00	1,755.00	4,598.39
Jun-30	Sales	460.00	350.00	4,140.00	1,986.96

Part B:

Moving average method:
Journal entry to record the missing inventory
Date	Particulars	Debit amount ($)	Credit amount ($)
30-Jun-14	Pilferage Account ----Dr.	283.85
To, Inventory	283.85
(Being 50 units of inventory found to be missing at the time of physical verification)
30-Jun-14	Profit and loss Account------Dr.	283.85
To, Pilferage Account	283.85
(Being the pilferage of 50 units adjusted against the profit and loss of the company)
FIFO
Journal entry to record the missing inventory
Date	Particulars	Debit amount ($)	Credit amount ($)
30-Jun-14	Pilferage Account ----Dr.	285.00
To, Inventory	285.00
(Being 50 units of inventory found to be missing at the time of physical verification)
30-Jun-14	Profit and loss Account------Dr.	285.00
To, Pilferage Account	285.00
(Being the pilferage of 50 units adjusted against the profit and loss of the company)

(Vernimmen et al. 2014)

Part C:

Inventory Control Account
Date	Particulars	Receipts (Units)	Issue (Units)	Balance (Units)
30-Jul-13	Balance b/d	200	200
Jul-30	Sales	120	80
Aug-25	Purchases	300	380
Aug-30	Sales	250	130
Sep-03	Purchases	450	580
Sep-10	Purchase returns	50	530
Sep-30	Sales	300	230
Oct-05	Purchases	300	530
Dec-08	Purchases	250	780
Dec-11	Sales	500	280
21-Feb-14	Purchases	150	430
Mar-18	Purchases	100	530
Apr-30	Sales	300	230
May-02	Sales return	30	260
May-04	Purchases	250	510
Jun-06	Purchase	300	810
Jun-30	Sales	460	350
Jun-30	Pilferage	50	300

Cost of sales account
Particulars	Debit ($)	Particulars	Credit ($)
To, opening materials	1,000.00	By, Purchase return	265.00
To, Purchases	1,575.00	By, Pilferage	283.85
To, Purchases	2,385.00	By, closing stock	1,703.11
To, Purchases	1,620.00
To, Purchases	1,362.50
To, Purchases	825.00
To, Purchases	560.00
To, Purchases	1,425.00
To, Purchases	1,755.00	By, Trading & P L A/c	10,255.54
12,507.50	12,507.50

Sales Account
Particulars	Debit ($)	Particulars	Credit ($)
To, Return	270.00	By, Bank	1,080.00
By, Bank	2,250.00
By, Bank	2,700.00
By, Bank	4,500.00
By, Bank	2,700.00
By, Bank	4,140.00
To, Trading & P L A/C	17,100.00
17,370.00	17,370.00

Question 2:

Part A:

Depreciation Schedule
Straight Line method:
Depreciation each year	110,000.00
Year ending 30th June	Annual depreciation expenses	Accumulated Depreciation	Carrying amount at the end of the year
2014	110,000.00	110,000.00	1,090,000.00
2015	110,000.00	220,000.00	980,000.00
2016	110,000.00	330,000.00	870,000.00
2017	110,000.00	440,000.00	760,000.00
2018	110,000.00	550,000.00	650,000.00

Diminishing Balance method:
A 15% per annum rate of depreciation has been assumed
Year ending 30th June	Annual depreciation expenses	Accumulated Depreciation	Carrying amount at the end of the year
2014	180,000.00	180,000.00	1,020,000.00
2015	153,000.00	333,000.00	867,000.00
2016	130,050.00	463,050.00	736,950.00
2017	110,542.50	573,592.50	626,407.50
2018	93,961.13	667,553.63	532,446.38

(Ragin 2014)

Sum of years digit method:
Depreciable value	1100000
Useful life	10 years	55
Year ending 30th June	Annual depreciation expenses	Accumulated Depreciation	Carrying amount at the end of the year
2014	200,000.00	200,000.00	1,000,000.00
2015	180,000.00	380,000.00	820,000.00
2016	160,000.00	540,000.00	660,000.00
2017	140,000.00	680,000.00	520,000.00
2018	120,000.00	800,000.00	400,000.00

Units of production method:
Depreciable value	1,100,000.00
Useful life	10 years
Total expected production (Units)	500,000.00
Year	Expected production (Units)
2014	50,000.00
2015	45,000.00
2016	55,000.00
2017	58,000.00
2018	60,000.00
Year ending 30th June	Annual depreciation expenses	Accumulated Depreciation	Carrying amount at the end of the year
2014	110,000.00	110,000.00	1,090,000.00
2015	99,000.00	209,000.00	991,000.00
2016	121,000.00	330,000.00	870,000.00
2017	127,600.00	457,600.00	742,400.00
2018	132,000.00	589,600.00	610,400.00

(Sharma and Singh 2015)

Part B:

Depreciation is generally charged on fixed assets that are used in business organizations to manufacture or produce goods or for providing services. It can be defined as the charge on fixed assets for its use in business organization to adhere with one of the fundamental concepts of accounting, i.e. matching expenditures with revenue in a particular period to calculate the actual profit or loss of a business for the period. Fixed assets are generally those assets which are used for more than few years in a business organizations to generate revenue for the business. There are more than few accepted methods that can be used to provide for depreciation on fixed assets. Depending on the character of an asset and its intended use in a business organization the management along with the accountants should decide the most apt and suitable method of charging and providing for depreciation in the financial statements for such fixed asset. Different acceptable depreciation methods to provide for depreciation on fixed assets are following:

Straight line method of charging depreciation: This is the most basic method of charging depreciation and also the most followed method of depreciation as business organizations across the globe use this method to provide for depreciation on different types of fixed assets. In this method the depreciable value of a fixed asset is equally depreciated by charging equal depreciation for each year during the useful life of a fixed asset. The depreciable value of a fixed asset is calculated by deducting the residual value of a fixed asset from its acquisition and installation costs. The useful life of a fixed asset is the period of time for which the asset is expected to be used in a business organization for generation of revenue. The advantages of using this method of depreciation is its simplicity and easier computation of depreciation amount. However, the method is too simple and is not at all scientific thus, not acceptable in case of fixed assets that are expected to have differing contribution in revenue generation activities in an organization over its useful life (Sharma and Singh 2015).

Diminishing balance method of depreciation: In diminishing balance method depreciation is charged in each year by using an appropriate rate of depreciation based on the nature and character of fixed assets. The depreciation rate is charged on the diminishing balance of a fixed asset thus, known as diminishing balance method of depreciation. The advantages of using this method is its superior ability to match expenditures relating to use of fixed assets in capital intensive organization. The use of this method is also accepted by income tax authorities of a country. The disadvantages of using the method includes ascertaining an appropriate rate of depreciation, the method is not suitable for each and every type of fixed assets.

Sum of year’s digit method: In this method the sum of years, i.e. useful life’s years are added to ascertain sum of years’ digit. Then the depreciation is charged in reverse order by multiplying the depreciable value of the asset with the last year’s digit and then dividing the outcome with the sum of years’ digit. This method is rarely used by business organizations as the method is not scientific in its approach and apportionment of depreciation.

Unit of production method: In case of estimation of total production of a particular product or goods from the sue of a fixed asset is possible with estimation of production in different years during the useful life of the fixed asset then there is no better method of charging depreciation than using the unit of production method. In this method the depreciable value of a fixed asset is apportioned as depreciation between the useful life of the asset using the unit production in different years and total unit of production during the useful life of the asset. The advantage of this method is its ability to correctly match the expenditures in relation with a fixed asset with the revenue. The depreciation charged using this method in all probability will help an organization to correctly show its operating results. The disadvantage of this method is that the management needs to be very careful while assessing the expected total production and year-wise production of a particular fixed asset.

Question 3:

Part A:

Machinery Account
Date	Particulars	Debit ($)	Date	Particulars	Credit ($)
01-01-11	To, Cash	33,000.00	31-12-11	By, Depreciation A/C	2,500.00
31-12-11	By, Balance c/d	30,500.00
33,000.00	33,000.00
01-01-12	To, Balance b/d	30,500.00	31-12-12	By, Depreciation A/C	2,500.00
31-12-12	By, Balance c/d	28,000.00
30,500.00	30,500.00
01-01-13	To, Balance b/d	28,000.00	30-09-13	By, Depreciation A/C	1,875.00
30-09-13	To, Cash	25,000.00	30-09-13	By, Cash	17,000.00
30-09-13	By, Profit & Loss A/c	9,125.00
31-12-13	By, Depreciation A/C	2,812.50
31-12-13	By, Balance c/d	22,187.50
53,000.00	53,000.00
01-01-14	To, Balance b/d	22,187.50	30-06-14	By, Depreciation A/C	4,992.19
30-06-14	By, Balance c/d	17,195.31
22,187.50	22,187.50
01-07-14	To, Balance b/d	17,195.31	30-06-15	By, Depreciation A/C	8,898.57
01-07-14	To, Revaluation	2,579.30	30-06-15	By, Balance c/d	10,876.04
19,774.61	19,774.61

Depreciation Account
Date	Particulars	Debit ($)	Date	Particulars	Credit ($)
31-12-11	To, Machinery	2,500.00	31-12-11	By, Profit & Loss A/c	2,500.00
2,500.00	2,500.00
31-12-12	To, Machinery	2,500.00	31-12-12	By, Profit & Loss A/c	2,500.00
2,500.00	2,500.00
30-09-13	To, Machinery	1,875.00	30-09-13	By, Profit & Loss A/c	1,875.00
31-12-13	To, Machinery	2,812.50	31-12-13	By, Profit & Loss A/c	2,812.50
4,687.50	4,687.50
30-06-14	To, Machinery	4,992.19	30-06-14	By, Profit & Loss A/c	4,992.19
4,992.19	4,992.19
30-06-15	To, Machinery	8,898.57	30-06-15	By, Profit & Loss A/c	8,898.57
8,898.57	8,898.57

Part B:

Statement of financial position as on June 30, 2012 (Extract)
Particulars	Amount ($)	Amount ($)
Gross Block of Machinery	33,000.00
Less: Accumulated Depreciation	3,750.00
Net Block	29,250.00

Statement of financial position as on June 30, 2014 (Extract)
Particulars	Amount ($)	Amount ($)
Gross Block of Machinery	25,000.00
Less: Accumulated Depreciation	8,437.50
Net Block	16,562.50

Statement of financial position as on June 30, 2015 (Extract)
Particulars	Amount ($)	Amount ($)
Gross Block of Machinery after revaluation	27,579.30
Less: Accumulated Depreciation	16,703.26
Net Block	10,876.04

Part C:

Machinery Account
Date	Particulars	Debit ($)	Date	Particulars	Credit ($)
01-01-11	To, Cash	33,000.00	31-12-11	By, Depreciation A/C	2,500.00
31-12-11	By, Balance c/d	30,500.00
33,000.00	33,000.00
01-01-12	To, Balance b/d	30,500.00	31-12-12	By, Depreciation A/C	2,500.00
31-12-12	By, Balance c/d	28,000.00
30,500.00	30,500.00
01-01-13	To, Balance b/d	28,000.00	30-09-13	By, Depreciation A/C	1,875.00
30-09-13	To, Cash	25,000.00	30-09-13	By, Cash	17,000.00
30-09-13	By, Profit & Loss A/c	9,125.00
31-12-13	By, Depreciation A/C	2,812.50
31-12-13	By, Balance c/d	22,187.50
53,000.00	53,000.00
01-01-14	To, Balance b/d	22,187.50	30-06-14	By, Depreciation A/C	4,992.19
30-06-14	By, Balance c/d	17,195.31
22,187.50	22,187.50
01-07-14	To, Balance b/d	17,195.31	01-07-14	By, Revaluation	2,579.30
01-07-14	30-06-15	By, Depreciation A/C	6,577.21
30-06-15	By, Balance c/d	10,618.11
17,195.31	17,195.31

Depreciation Account
Date	Particulars	Debit ($)	Date	Particulars	Credit ($)
31-12-11	To, Machinery	2,500.00	31-12-11	By, Profit & Loss A/c	2,500.00
2,500.00	2,500.00
31-12-12	To, Machinery	2,500.00	31-12-12	By, Profit & Loss A/c	2,500.00
2,500.00	2,500.00
30-09-13	To, Machinery	1,875.00	30-09-13	By, Profit & Loss A/c	1,875.00
31-12-13	To, Machinery	2,812.50	31-12-13	By, Profit & Loss A/c	2,812.50
4,687.50	4,687.50
30-06-14	To, Machinery	4,992.19	30-06-14	By, Profit & Loss A/c	4,992.19
4,992.19	4,992.19
30-06-15	To, Machinery	6,577.21	30-06-15	By, Profit & Loss A/c	6,577.21
6,577.21	6,577.21

(Warren Jr et al. 2015)

References:

Ragin, C.C., 2014. The comparative method: Moving beyond qualitative and quantitative strategies. Univ of California Press.

Sharma, R.D. and Singh, N., 2015. Use of Depreciation as a Tax Policy Device to Control Inflation.

Vernimmen, P., Quiry, P., Dallocchio, M., Le Fur, Y. and Salvi, A., 2014. Corporate finance: theory and practice. John Wiley & Sons.

Warren Jr, J.D., Moffitt, K.C. and Byrnes, P., 2015. How Big Data will change accounting. Accounting Horizons, 29(2), pp.397-407.