Accounting for Decision Making - Trimester 1, 2018

Assessable Homework 5--Chapter 6

Question 1

A motor vehicle was purchased for $160,000 on 1^st January, 2017. It is estimated that it has a useful life of 4 years and will then be sold for $10,000. The financial year ends on 31^st December. 

For the diminishing balance method, the firm uses a 50% depreciation rate.  

(a) How much depreciation would be shown on the Income Statement for each of the 4 years using the straight-line method? __________________________

(b) Calculate depreciation for the first 2 years using the diminishing balance method

Year Bal. at beginning of year Rate Yearly depreciation on Income Statement Bal. at end of year

2017 50%

2018 50%

(c) Complete the items below as they would appear on the Balance Sheet at 31 December, 2018.

Straight Line 31 December 2018 $ Diminishing Balance 31 Dc 2018 $ Motor Vehicle Motor Vehicle Less Accumulated Depreciation   Less Accumulated Depreciation  Written down value Written down value

(e) Which method causes the higher profit figure for 2018? _______________________________ 

Question 2

The list of account balances for Cayden Enterprises, a sole trader, at 31 March is:

Accounts payable $20,000; Accounts receivable $50,000; Accumulated depreciation - fixtures and fittings $5,000; Advertising expense $1,500; Capital $160,400; Cash at bank $100,000;

Cost of sales $132,000; Depreciation expense - fixtures and fittings $2,500: Fixtures and fittings $12,000; Inventory $40,000; Land $25,000; Loan payable $20,000; Prepaid rent $ 1,200;

Rent expense $3,800; Repairs expense $9,900; Sales revenue $172,500; Unearned revenue $3,500. 

Calculate the following items that would appear in the Income Statement for the period ended 31 March. SHOW ALL WORKINGS

Gross Profit

Net Profit