Current & Non Current Assets

INVENTORY PERIODIC INVENTORY SYSTEM In a Periodic schedule dodge, no effort is make to keep up to date records of either the inventory or the apostrophize of goods sold. Instead, these amounts atomic number 18 determined exactly periodically __ usually at the end of separately social class. It is expenditured by very small businesses having manual accounting systems. Questions 1 3 (Meigns & Meigns), Question 4 (Fess & Warren) Question 1- Mach IV Audio uses periodic inventory system. One of the stores virtually popular products is a minidisc car stereo system. The inventory quantities, purchases, and trades of this product for the most recent year are as follows Number of building blocks Cost per unit heart Cost scrutinise Jan 01 10 Rs. 299 Rs. 2990 Purchases May 12 15 306 4590 Purchases July 09 20 308 6160 Purchases Oct 04 8 315 2520 Purchases Dec 18 19 320 6080 Goods unattached for sale 72 Rs. 22340 units sold during the year 51 gillyflower 21 Instruct ions rate the live of December 31 inventory and the cost of goods sold for the above mentioned product nether each of the following cost flow assumptions a.First-in, first-out b. Last-in, first-out c. Average cost (round to the hot rupee, except unit cost) Question 2 Same three inventory valuation methods under periodic inventory system Number of units Cost per unit Total Cost Inventory Jan 01 9 Rs. 3. 00 Rs. 27. 00 Purchases 1 12 3. 50 42. 00 Purchases 2 30 3. 80 114. 00 Purchases 3 40 4. 00 160. 00 Purchases 4 19 5. 00 95. 00 Goods available for sale 110 Rs. 438. 00 Units sold during the year Inventory Dec 31 20 Question 3 Same three inventory valuation methods under periodic inventory system Number of units Cost per unit Total Cost Beginning Inventory 10 Rs. 80 Rs. 800 First Purchases (Mar. 1) 5 90 450 Second Purchases (July 1) 5 100 vitamin D Third Purchases (Oct. 1) 5 120 600 Fourth Purchases (Dec. 1) 5 130 650 Goods available for sale 30 Rs. 3,000 Units in remainder inventory 12 Units sold 18 Question 4 Stewart Co. s beginning inventory and purchases during the fiscal year ended establish 31, 2012, were as follows Units Unit Cost Rs. Total Cost Rs. April 01, 2011 Inventory 1,000 50. 00 50,000 April 10, 2011 Purchases 1,200 52. 50 63,000 May 30, 2011 Purchases 800 55. 00 44,000 Aug 26, 2011 Purchases 2,000 56. 00 112,000 Oct. 15, 2011 Purchases 1,500 57. 00 85,500 Dec. 31, 2011 Purchases 700 58. 00 40,600 Jan. 18, 2012 Purchases 1,350 60. 00 81,000 inch 21, 2012 Purchases 450 62. 00 27,900 Total 9,000 504,000 Stewart Co. uses the periodic inventory system, and there are 3,200 units of inventory on March 31, 2012.Determine the cost of ending inventory using the three costing methods. Practice Question (Fees & Warren) Exer. 10-3 Page 366 Exer. 10-4 Page 366 Prob. 10-3A Pg. 369 Prob. 10-3B Pg 374 INVENTORY PERPETUAL INVENTORY SYSTEM In a Perpetual Inventory system, merchandising transactions are recorded immediately as they occur. The system draws its name from the fact that the accounting records are unploughed perpetually up to date. This system is very easy to use. It is cost effective, & thus widely used because of the growing use of computerized accounting.Question 1 World Class market place Wholesalers performed the following transactions, all on credit, and all related to a particular chocolate bar. July 01 Beginning Inventory 23 units of Rs. 4 each. July 02 Purchased 57 units of Rs. 5 each. 12 Purchased 51 units of Rs. 8 each. 13 exchange 60 units for Rs. 12 each. 18 Sold 20 units for Rs. 12 each. 22 Purchased 26 units of Rs. 9 each. 26 Sold 18 packs for Rs. 15 each. Instructions for Questions 1, 2 & 3 a) Prepare the Inventory Subsidiary Ledger and, b) Give the journal entries to record the Purchases, the Cost Goods Sold and the gross revenue assuming that the wholesalers uses . First-in, First-out Method (FIFO) 2. Last-in, First-out Method (LIFO) 3. Average Cost Method Question 2 Sohai l Books deals with school books. This question is related to Credit purchases and sales of Urdu Qaida for class 1. March 04 Purchased 100 copies for Rs. 12 each. 11 Sold 35 copies for Rs. 17. 18 Purchased 80 copies for Rs. 13 each. 19 Sold 40 copies for Rs. 19 each. 27 Sold 41 copies for Rs. 20 each. Question 3 Noman Company Inventory & Sales Data Month Ended January 31, 2010 Date stilboestrolcription Units Unit Cost Rs. Date Des Units Unit Cost Rs. Jan 01 12 15 18 Beg. InventoryPurchasesSalesPurchases 50 100 50 200 1. 00 1. 50 2. 00 Jan 20 22 27 30 PurchasesSalesPurchasesSales 100150 50 80 2. 50 4. 00 Practice Question (Fees & Warren) Exer. 10-5 Page 366 Exer. 10. 6 Page 366 Prob. 10-4A Pg. 369 Prob. 10-4B Pg 374 Practice Question (Meigs & Meigs 13th Edition) Exer. 8. 2 Page 351 Prob. 8. 1 Page 356 Prob. 8. 2 Page 356 _____________________________ Perpetual Inventory SystemInventory Subsidiary Ledger ( ) Date Purchased Sold Balance Units UnitCost Rs. TotalCostRs. Units Unit CostRs. TotalCostRs. Units UnitCostRs. TotalCostRs. 6 (Photocopies) of this page, if you dont want to make this format 6 times in your register SUMMARY OF THE JOURNAL ENTRIES MADE IN PERPETUAL AND PERIODIC INVENTORY SYSTEM Event Perpetual Inv. System Periodic Inv.System Purchasing inventory Inventory Accounts Payable (or funds)To record the purchase of inventory Purchases Accounts Payable (or Cash)To record the purchase of inventory Sale of Inventory Accounts due (or Cash) SalesTo record the sale of inventoryCost of Goods Sold InventoryTo update Cost of Goods sold and inventory accounts Accounts Receivable (or Cash) SalesTo record the sale of inventory(In the periodic inventory system, no compliance is made at the time of sales to update Cost of Goods sold and inventory accounts. Settlement of A/Payable to suppliers Accounts Payable CashTo record payment for inventory purchased on credit Accounts Pay able CashTo record payment for inventory purchased on credit Collection from credit customers Cash Accounts ReceivableTo record cash collection from credit customers. Cash Accounts ReceivableTo record cash collection from credit customers. Income assertion of a Service Business Revenue outlays = sack up Income Income Statement of a Merchandising Business Delta TradersIncome Statement For the year ended December 31, 2011 Sales Rs. 6, 000 little Sales Returns 1, 000 Net Sales 5, 000 Less Cost of Goods Sold 1, 150 Gross Profit 3, 850 Less Operating Expenses Salaries Expense Rs. 00 Utility Expense 100 Depreciation Expense machine 50 650 Net Income 3, 200 HOW TO CALCULATE COST OF GOODS SOLD Inventory Jan 01 -Add Purchases Carriage Inwards -Less Purchases Returns - Purchases Discount - Net Purchases Cost of goods available for sale Less Inventory Dec 31Cost of Goods Sold 55050 Rs. 00 (100)(50) Rs. 10004501450(300) one hundred fifteen0 Questions 1 & 2 The data of deuce questions is given below. Prepare a Trading Account for the year ended Dec 31 Sales Rs. 10, 600 Sales Rs. 210, 420 Sales Returns 1, 200 Sales Returns 4, 900 Inventory Jan 01 5, 000 Inventory Jan 01 9, 410 Purchases 3, 500 Purchases 108, 680 Carriage Inwards 500 Carriage Inwards 840 Purchases Returns 400 Purchases Returns 3, 020 Purchases Discount 200 Purchases Discount 700Inventory Dec 31 2, 500 Inventory Dec 31 11, 290 FORMATS OF FINANCIAL STATEMENTS Delta Traders Income Statement For the year ended December 31, 2011 Rs. Rs. Rs. Sales 6, 000 Less Sales Returns 700 Sales Discount 300 1, 000 Net Sales 5, 000 LESS COST OF GOODS SOLD Inventory Jan 01 1, 000 Add Purchases 550 Carriage Inwards 50 600 Less Purchases Returns (100) Purchases Discount (50) Net Purchases 450 Cost of goods available for sale 1, 450 Less Inventory Dec 31 (300) 1, 150 Gross Profit 3, 850 Less Operating Expenses Salaries Expense 500 Utilities Expense 100 Depreciat ion Expense machine 50 650 Net Profit 3, 200 Delta Traders Statement of Financial Position December 31, 2011AssetsCurrent Assets Cash Accounts Receivable - Repair Revenue Receivable - Inventory - Supplies - Pre paying(a) Insurance - Total Current Assets Plant Assets Land Shop Less Accumulated Depreciation Machine Less Accumulated Depreciation Total Plant Assets -TOTAL ASSETS Liabilities & Owners EquityLiabilities Accounts Payable - Unearned Repair Revenue - Total Liabilities Owners Equity Capital (Dec 31, 2011) TOTAL LIABILITIES & OWNERS EQUITY - Rs. 5,000 2,700 3,000 1,400 Rs. 3,700 1,000 800 300 500 1,300- 10,000 2,300 1,6003,2004,440 Rs. 7, 60013,90021,500 7,640 13,860 21,500 Question 1- The following trial balance was extracted from the books of F. Bell on December 31, 2011. Draw up his Income Statement for the year ended December 31, 2011, and a Balance Sheet as at that date Debit Rs. Credit Rs. Sales 210, 420 Purchases 108, 680 Inventory Jan 1, 2011 9, 41 0 Carriage verbotenwards 1, 115 Carriage Inwards 840 Return Inwards 4, 900 Return Outwards 3, 720 Salaries & Wages Expense 41, 800 Fuel Expense 912 Rent Expense 6, 800 General Expenses 318 Motor vehicle 14, 400 Allowance for Depreciation motor vehicle 520 Fixtures & Fittings 912 Accounts Receivable 23, 200 Accounts Payable 13, 580 Cash 24, 780 Drawings 9, 000 Capital 18, 827 247, 067 247, 067 Inventory at December 31, 2011 was Rs. 11, 290 NON CURRENT ASSETS 1. everyplacet ASSETSPlant assets / Property, Plant & Equipment / Fixed Assets / Non Current Assets FIRST microscope stage AQUISATION OF PLANT ASSETS Question 1 Wilmet College recently purchased radical computing equipment for its library. The following information refers to the purchase and installation of this equipment 1. The list price of the equipment was $275, 000 however, Wilmet College qualified for an education discount of 25, 000. 2. Wilmet paid sales tax of $15, 000 at the date of purchase. 3. Freight charges for delivery of the equipment totaled $1, 000. 4. Installation cost related to the equipment amounted to $5, 000. 5. During installation, one of the computer terminals was accidentally damaged by a library employee. It cost the college $300 to repair this damage. 6.As soon as the computers were installed, the college paid $4, 000 to photographic print admission brochures, featuring the librarys new, state-of-the-art computing facilities. Instructions a. Compute the total cost debited to the colleges Computing Equipment account. b. Prepare a journal entry at the end of the period year to record depreciation on the computing equipment. Wilmet College will depreciate this equipment by the straight line method (half-year convention) over an estimated useful life of 5 years. Assume a zero eternal sleep harbor. (Meigs & Meigs Problem 9. 1 / Page 402 For Practice Fees & Warren Exercise 11-1 / Page 404 warrant STAGE DEPRECIATION OF PLANT ASSETSQuestion 2 On J anuary 2, 2005, Jansing Corporation acquired a new machine with an estimated useful life of 5 years. The cost of the machine was $40, 000 with an estimated symmetry value of $5, 000. The depreciation stray per year is 40 %. a. Prepare a complete depreciation table under the two depreciation methods listed below. Assume that a full year of depreciation was taken in 2005. 1. Straight-line 2. Declining balance method (Depreciation Rate per year is 40 %) (Meigs & Meigs Exercise 9. 4 / Page 400) Question 3 On August 3, 2000, Srini Construction purchased special- blueprint equipment at a cost of $1, 000,000.The useful life of the equipment was estimated to be 4 years, with a residual value of $50, 000. The depreciation rate is 50 % per year & half year convention is to be used. a. Compute the depreciation expense to be recognized each calendar year for pecuniary reporting purpose under the straight-line depreciation method. b. Compute the depreciation expense to be recognized each ca lendar year for financial reporting purpose under the declining balance method with the per year depreciation rate of 50 % (Meigs & Meigs Exercise 9. 3 / Page 400) For Practice Fees & Warren Exercises 11-5, 11-6 & 11-7 / Page 405 Meigs & Meigs Problems 9. 2 & 9. 3THIRD STAGE DISPOSAL OF PLANT ASSETS Question 4 During the current year, Ramirez Developers disposed of plant assets in the following transactions Feb 10Office equipment costing Rs. 26, 000 was given to a scrap dealer at no charge. At the date of disposal, accumulated depreciation on the equipment amounted to Rs. 25, 800. Apr 01Ramirez sold land and a building to Claypool Associates for Rs. 900, 000, receiving Rs. 100, 000 cash and a five year, 9 percent note receivable for the remaining balance. Ramirez records showed the following records Land Rs. 50, 000 Building, Rs. 550, 000 accumulated depreciation Building (at the date of disposal), Rs. 250, 000.Aug 15 Ramirez traded-in an old truck with a new one. The old truc k had costRs. 26, 000, and its accumulated depreciation amounted to Rs. 18, 000. The list price of the new truck was Rs. 39, 000, but Ramirez received a Rs. 10, 000trade-in allowance for the old truck and paid Rs. 29, 000 in cash. Ramirez includes trucks in its Vehicle account. Oct 01Ramirez traded in its old computer system as part of the purchase of a new system. The old system had cost Rs. 15, 000, and its accumulated depreciation amounted to Rs. 11, 000. The new computers list price was Rs. 8, 000. Ramirez accepted a trade-in allowance of Rs. 500 for the old computer system, paying Rs. , 500 put through in cash, and issuing a 1-year, 8 percent note payable for the Rs. 6, 000 balance owed. Instructions Prepare journal entries to record each of the disposal transactions. (Meigs & Meigs Problem 9. 4 / Pg 404) For Practice Fees & Warren Ex. 11-12 & Ex. 11-13 Question 5 On January 5, 2005, a machine was bought by J & P Traders at a list price of Rs. 43,000. The cost of its carr iage in was Rs. 800, installation and testing charges were Rs. 4,200 Its estimated useful life is 4 years and its estimated residual value is Rs. 2, 000. Instructions a. work out the cost price of the machine and give a proper journal entry of the acquisition of the tangible asset. b.Calculate the per year depreciation expense using the straight line method. c. Prepare the depreciation schedule for all the four years. d. Give the adjusting entries to record depreciation for the last useful year. e. After its useful life, the machine was traded-in for a new machine. The new machines list price was Rs. 58, 000. J & P Traders accepted a trade-in allowance of Rs. 3, 000 for the old machine, paying Rs. 9, 000 down in cash, and issuing a 1-year, 8 percent note payable for the Rs. 46, 000 balance owed. 2. INTANGIBLE ASSETS Similarities between Tangible and Intangible assets 1. Plant Assets 2. Long Lived 3. record at cost 4. Cost is expensed over useful life in a systematic manner.For Inta ngible assets, Straight line method over 40 years is followed. 5. At disposal, the book value is eliminated, gain / loss is recorded. Differences S. No TANGIBLE ASSETS INTANGIBLE ASSETS 1. Has physical existence Has no physical existence 2. term Depreciation is used. Term Amortization is used. 3. Cost Price = list price + all other necessary expenses. Cost Price = Purchase Price only 4. Depreciation period depends upon the estimated useful life. Amortization period cannot be longer than 40 years. 5. Depreciation Expense-equip Accumulated Depreciation-Equip Amortization Expense PatentIntangible Assets are rights and privileges that result from the ownership of long lived assets that dont possess physical substance. 1. GOODWILL * Largest Intangible asset on companys balance canvas tent under the head of Intangible assets. * Recorded when transaction involves purchase of entire business. Here goodwill is the excess of cost over fair market value of net assets. (assets less liabilities) acquired. * Value of all favorable attributes that relates to a business. Includes 1. Exceptional management 2. Desirable location 3. Good customers relations 4. Skilled employees 5. High prime(prenominal) products 6. Manufacturing efficiency 7. Weak Competition 2. PATENTS A right by the authorities to manufacture, use and sale of a product. * To encourage invention of a new product. * When spare is purchased from the inventor, purchase price is debited by the account title of Patents. * Are granted for 17 years (legal life). * Obsolesce may cause patent to be economically ineffective. 3. TRADE MARK / TRADE NAME * Name, symbol or distinctive design that identifies a business and a product. * Permanent exclusive right to use a trademark, brand name, commercial symbol. Is obtained by registering it with the government. * For a purchased trademark, cost is substantial and amortized over 40 years. * Is renewable. 4. FRANCHISE It is the right granted by the company to en gineer a certain type of business in a specific geographical area. * Cost is quite substantial * Small cost Amortized over a short period of 5 years. * Material cost 40 years. Amortization should be based on the life of the franchise. 5. COPYRIGHTS * Exclusive rights granted by the government to protect the production and sale of literary or artistic material for the life of the creator plus 50 years. NATURAL RESOURCES Examples Oil & Gas Reserves, gold, copper, combust mines, timber (forests), etc. As long as this asset is present in its natural environment, it is regarded as Property, Plant & Equipment.Once it is removed from its natural environment, it becomes inventory, i. e. a current asset. Question 1 Rainbow exploitrals paid Rs. 45, 000, 000 (Rs. 45 million) to acquire the Super Coal Mine, which is believed to contain 10 million tons of coal. The residual value of the mine later all of the coal is removed is estimated to be Rs. 5 million. Working Cost Estimated Resid ual Value = Depletion Expense per ton Estimated Production In tons 45 million 5 million = Rs. 4 Depletion Expense per ton 10 million Suppose in the first year, 2 million tons of coal was mined, the entry to record depletion would be 2010Debit (Rs) Credit (Rs) Dec 31 Inventory 8, 000, 000 Accumulated Depletion Super Coal Mine 8, 000, 000 To record depletion of the Super Coal Mine for the year. (2, 000, 000 tons mined Rs. 4 per ton) Balance Sheet (extract) of Rainbow Mineral Property, Plant & Equipment mining Properties Super Coal Mine Rs. 45, 000, 000 Less Accumulated Depletion 8, 000, 000 Rs. 37, 000, 000 (Meigs & Meigs, Page 389) Out of 2 million tons, 75, 000 tons of coal was sold. Record the Cost of Goods Sold.Cost of Goods Sold 300, 000 Inventory 300, 000 To record the cost of goods sold Question 2 Salter Mining Company purchased the Northern Tier Mine for Rs. 21 million cash. The mine was estimated to contain 2. 5 million tons of copper and to have a residual value of Rs. 1 million. During the first year of mining operations at the Northern Tier Mine, 50, 000 tons of copper were mined of which 40, 000 tons were sold. Instructions a. Compute depletion expense per ton. Prepare a journal entry to record depletion during the year. b. Show how the Northern Tier Mine, and its