Property A\c (using method 2 of revaluation) 200 000 Disposal 80 000 150 000 Bal c\d 270 000 350 000 350 000Ĭalculation of difference between cost of property and revalued amount = 270 000 – 120 000 = 150 000 Cost being less than revalued amount, property account should be debited. NBV of property 1 April 2008 Less NBV of property disposed NBV of property being revaluedĬalcualtion of revaluation gain: Revalued amount NBV R.Gain Property A\c (using method 1 of revaluation) 200 000 Disposal 172 700 Prov for dep Bal c\d 372 700 Past experience Specific knowledge about a customer The state of the economy Consistency concept Industry average Length of time Size of trade receivables Comparing with previous years or with competitors.Ĭhapter 2: Accounting for non-current assets Question 1 Alcom Ltd b(1) Dep: 2003 $130, 2004 $130, 2005 $310 b(2) Dep: 2003 $85, 2004 $130, 2005 $220 b(3) Dep: 2003 $130, 2004 $117 2005 $286 b(4) Dep: 2003 $85, 2004 $122, 2005 $200 Question 2 Mocota Ltd a) Machinery a\c – Bal b\d $41 000 Megaton $11800 Disposal $12 000 Bal c\d $40 800 Provision for depreciation – Bal b\d $14 400 depreciation for the year $7 344 Bal c\d $15 264 b) Loss on disposal $1 520 Question 3 Lea Croft a) Bal b\d $82 500 Bal c\d $92 500 b) Bal b\d $49 200 (19 600+ 17 600 + 12 000) Depreciation for the year $25 160 (3 960+7 200+14 000) Disposal $19 600 Bal c\d $54 760 c) Loss on disposal $4 200 Question 4 Berton Ltd a) Rates of depreciation: Equipment 10 % Vehicles 25 % b) Loss on disposal of equipment $6000 Profit on disposal of vehicles $2500 c) Cost at – Equipment $1 070 000 Vehicles $690 000 Provision for depreciation at – Equipment $356 000 Vehicles $415 000 Question 5 Laser Ltd
Prudence concept Current provision $742 is 2% of the trade receivables Actual bad debts are $1500, this may suggest the provision is insufficient. Reduce trade receivables/current assets/balance sheet total f) g) State of the economy for example in a recession the proportion of bad debts may increaseġ6 800 × 1% = 12 600 × 2% = (7 100 – 700) × 3% = 1 300 × 10% =īalance Sheet (extract) at 31 December 2010 $ Trade receivables 37 100 Less provision for doubtful debts 742 Specific knowledge of customers that are known to have financial problems. Looking at the credit record of existing customers.
(f) Past experience looking at previous trade receivables and the proportion that turn into bad debts. It is an application of the prudence concept in that profit is not overstated in the income statement, and trade receivables are not overstated in the balance sheet. (e) Provision for doubtful debts is an estimate of the amounts owed by credit customers who might be unable to pay their debt.
Pfdd at = 3 % x 160 000 = 4800 Pfdd at = 3 % x (182 000 – 5000 – 2300 – 1700) + 1700 = 6890Įxtract of IS Less Expenses Increase in Pfdd Bad debtsĮxtract of Balance sheet Current assets Trade receivables Less Pfdd ADVANCED LEVEL ACCOUNTING – S.M.AULLYBUX & D.HARRISON Answer key for multiple choice questions NOĬhapter 1 Bad debts and Provision for doubtful debts Question 3 Paula Aniston ai) aii)