MAN1061 Financial Accounting 1 : Solution Essays

Question

(a) An extract from the Statement of Financial Position of Star Ltd as at 31st December 2018 showed the following non-current assets:

Cost Depreciation WDV

Buildings 234,200 35,130 199,070

Plant 136,500 30,450 106,050

Vehicles 37,800 15,820 21,980

Buildings are depreciated at 5% per annum on cost.

Plant is depreciated on a straight-line basis assuming a useful life of 10 years and has an estimated residual value of £35,000.

Vehicles are depreciated at 25% per annum using the reducing balance method.

On 1st August 2019 a new vehicle was acquired for £9,000, which was to be depreciated in line with company policy, pro rata to time (only depreciated for the time owned in the current year).

Required:

Calculate the total depreciation expense for the year ended 31st December 2019 and show the updated non-current assets extract as at 31st December 2019, showing all your calculations to the nearest whole number.

b) Give 3 examples of the users of financial statements and discuss what purpose they would require the information for.

(c) Discuss the difference between the Irrecoverable debts account and the Allowance for irrecoverable debts account? (5 marks)

Question 4

a) The following information has been extracted from the accounts of Square Ltd for the year ended 31st December 2019.

Sales ledger control account opening balance 1 January 2019 75,990

Purchase ledger control account opening balance 1 January 2019 97,465

Credit sales 432,639

Cash and cheques paid to credit suppliers 319,800

Discounts allowed 8,640

Cash and cheques received from credit customers 407,654

Discounts received 11,922

Returns outwards 11,273

Purchases 347,540

Carriage inwards 3,475

Returns inwards 9,985

In addition the following information has been received:

(i)  A cheque from a customer for £1,567 has been dishonoured by the bank.

(ii) Cash of £330 was paid out in respect of a credit balance on a credit customer’s ledger account.

(iii) A balance of £215 in the sales ledger control account is to be offset against the same person’s balance in the purchase ledger control account.

(iv) A bill of exchange payable to the value of £1,745 was issued to a supplier.  Cash paid on bills payable amounted to £12,890.

(v)  Irrecoverable receivables amounting to £6,496 are to be written off and the allowance for IR is calculated to be £7,769. Complete the two control accounts below for the year ended 31 December 2019 including the closing balances.


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