QUESTIONS 1) An asset that was purchased 2 years ago for 20,000 has a carrying amount of 14,000 and three

years of remaining useful life. If the asset incurs an impairment loss of 3,000, yet its residual value remains unchanged, what will the annual depreciation charge e for the remainder of the asset!s life" 2) #hat are the $ournal entries for the following% inventory of 10,000 is purchased on credit, of which &,000 is su se'uently sold for (,000 cash and, for the remaining 2,000, there is an impairment of )00. 3) A company purchases raw materials for 12,000, and it incurs the following e*penses in converting the raw materials into )00 units of finished goods% la our of 4,000, depreciation of 1,000, transport 1,200. If the company starts the period with )0 units of finished goods, with a oo+ value of 2,000, if it sells 4&0 units during the reporting period, for a price of )0 per unit, and if inventory is valued on a weighted average asis, what is the company!s gross profit, and what is the oo+ value of inventory at the end of the period" 4) A company ta+es out a loan of 10,000, on which it ma+es annual payments of 100. If the effective rate of interest is 10,, what is the cumulative interest e*pense that has een recognised in retained profit after two years and what is the amount owing to the an+ at the end of that period" )) An asset that was purchased ) years ago for 20,000 has a carrying amount of 12,000 and three years of remaining useful life. -ow much is the asset!s residual value" .) A company ta+es out a loan of 4,000, on which it ma+es annual payments of .40. If the effective rate of interest is 10,, what is the cumulative interest e*pense that has een recognised in retained profit after two years and how much capital has een repaid during that period" /) An asset that is two years old has a carrying amount of 14,000, three years of remaining useful life, and a residual value of 2,000. -ow much was the asset originally purchased for" &) A company starts the financial year with net assets of 40,000. 0uring the year, the company ma+es a profit of 3,000, orrows 2,)00 from the an+, purchases 1,000 of fi*ed assets, and pays a dividend of 1,400. #hat is the value of the company!s net assets at the end of the year" () A company holds an asset that was ac'uired under a finance lease. If it ma+es a lease payment of 12,000, comprising 4,000 interest and &,000 capital repayment, and if the asset depreciates y 1,200, what is the change in the company!s net assets" 10) A company owns several vans, with a total net oo+ value of 120,000 at the start of the financial year. 0uring the year, the amounts in the income statement and cash flow statement relating to the company!s vans are 1&,000 for depreciation, 2,000 for loss on disposal, 2),000 for the purchase of a new van, and 21,000 for total investing cash outflow. #hat is the net oo+ value of vans at the end of the financial year"

ANSWERS 1) An asset that was purchased 2 years ago for 20,000 has a carrying amount of 14,000 and three years of remaining useful life. If the asset incurs an impairment loss of 3,000, yet its residual value remains unchanged, what will the annual depreciation charge e for the remainder of the asset!s life" Gross book value 20000 Accumulated depreciation 6000 Net book value 14000 So, annual depreciation = A furt er 3 !ears of depreciation = N#$ at end of useful life = residual value = &mpaired carr!in' amount 11000 (esidual value %000 )epreciable amount 6000 Annual depreciation 2000

3000 "000 %000

2) #hat are the $ournal entries for the following% inventory of 10,000 is purchased on credit, of which &,000 is su se'uently sold for (,000 cash and, for the remaining 2,000, there is an impairment of )00. )r &nventor! *r Accounts pa!able )r *ost of sales *r &nventor! )r *as *r (evenue )r ,peratin' e-penses .or cost of sales/ *r &nventor! 10,000 10,000 +,000 +,000 ",000 ",000 %00 %00

3) A company purchases raw materials for 12,000, and it incurs the following e*penses in converting the raw materials into )00 units of finished goods% la our of 4,000, depreciation of 1,000, transport 1,200. If the company starts the period with )0 units of finished goods, with a oo+ value of 2,000, if it sells 4&0 units during the reporting period, for a price of )0 per unit, and if inventory is valued on a weighted average asis, what is the company!s gross profit, and what is the oo+ value of inventory at the end of the period" *ost of production = 12000 0 4000 0 1000 0 1200 = 1+200 ,penin' balance = 2000 1otal cost2total units = cost per unit = 202002%%0 = 363424 *losin' inventor! = 405363424 = 2%41, *ost of sales = 4+05363424 = 1462" Gross profit = .4+05%0/61462" = 6341

4) A company ta+es out a loan of 10,000, on which it ma+es annual payments of 100. If the effective rate of interest is 10,, what is the cumulative interest e*pense that has een recognised in retained profit after two years and what is the amount owing to the an+ at the end of that period" ,penin' book value 10000 &nterest at 107 1000 8ess pa!ment 100 *losin' #$ .!r 1/ 10"00 &nterest at 107 10"0 8ess pa!ment 100 *losin' #$ .!r 2/ 11+"0 *umulative interest e-pense9 20"0 )) An asset that was purchased ) years ago for 20,000 has a carrying amount of 12,000 and three years of remaining useful life. -ow much is the asset!s residual value" Gross book value Accumulated depreciation Net book value 20000 +000 12000 1600 4+00 4200

So, annual depreciation = A furt er 3 !ears of depreciation = N#$ at end of useful life = residual value =

.) A company ta+es out a loan of 4,000, on which it ma+es annual payments of .40. If the effective rate of interest is 10,, what is the cumulative interest e*pense that has een recognised in retained profit after two years and how much capital has een repaid during that period" ,penin' book value &nterest at 107 8ess pa!ment *losin' #$ .!r 1/ &nterest at 107 8ess pa!ment *losin' #$ .!r 1/ 4000 400 640 3460 346 640 34"6

*umulative interest e-pense9 446 *apital repa!ment9 4000 : 34"6 = %04 /) An asset that is two years old has a carrying amount of 14,000, three years of remaining useful life, and a residual value of 2,000. -ow much was the asset originally purchased for" Annual depreciation e*pense 1 214,00032,000)43 1 4,000 5et oo+ value of 14,000 6 depreciation for two years 1 22,000 original cost

&) A company starts the financial year with net assets of 40,000. 0uring the year, the company ma+es a profit of 3,000, orrows 2,)00 from the an+, purchases 1,000 of fi*ed assets, and pays a dividend of 1,400. #hat is the value of the company!s net assets at the end of the year" 7orrowing and capital e*penditure have no effect on net assets. 5et assets increase with profit 23,000) and reduce with dividend 21,400), and so rise to 41,.00. () A company holds an asset that was ac'uired under a finance lease. 8he lease o ligation on the alance sheet includes accrued interest paya le. If the company ma+es a lease payment of 12,000, comprising 4,000 interest and &,000 capital repayment, and if the asset depreciates y 1,200, what is the change in the company!s net assets" 9eduction in assets 1 1,200 2depreciation) 6 12,000 2cash) 9eduction in lia ilities 1 &,000 2capital repayment) 6 4,000 2interest) 9eduction in net assets 1 1,200 10) A company owns several vans, with a total net oo+ value of 120,000 at the start of the financial year. 0uring the year, the amounts in the income statement and cash flow statement relating to the company!s vans are 1&,000 for depreciation, 2,000 for loss on disposal, 2),000 for the purchase of a new van, and 21,000 for total investing cash outflow. #hat is the net oo+ value of vans at the end of the financial year" 8otal investing cash outflow 1 21,000. :ince 2),000 is spent to ac'uire a new van, there must e a 4,000 inflow from the disposal. 8he loss on disposal was 2,000, so the oo+ value disposed of was .,000. ;pening 57< 1 120,000, less disposal .,000, plus new vans 2),000, less depreciation 1&,000 1 closing 57< of 121,000.