Annual Depreciation Expense Methods Question
There are 2 question with sub elements ( all worth 1,2,3 marks etc, ) formula provided and i have atmepted to answer; however need double checking as it could be wrong.
The last question 3 require to analyse the report provided, and based on the answers of question 2 and 3 and write 1300 words maximum.
All instructions provided and including rubric for the question 3 ; there is even examples attached along with each questions.
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A2 accounting
Question 1 a
Straight line depreciation: ……
 Straight line depreciation = = = 56000/7=$8000
Depreciation rate = 58,000/ 8000 = 725 %
The annual (year 1) depreciation of coffee machine on income statement is $8000.
Year 2 depreciation of 2018 = 8000 x 2= $16,000
2017  
Straight line depreciation  8000  
Written Down Value (cost depreciation= 58,000 8000.  48,000  
2018 depreciation  16000  
WDV (58000 16000)  42,000  
 Reducing balance method:
Formula
P= (1 /C) x100 %
P= (1 ) X100
= (1 ) x100
= (1) x 100
= (1 0.618) x 100
=0.382 x100= 38.2%
Percentage of depreciation is 38.2% each year.
2017  $  
38.2% of 58,000  $22,156  
WDV [cost of 58000 – 22,156]  $35,844  
2018 depreciation is (38.2% of WDV)  $13,692  
WDV (2017 WDV 2018 depreciation)  $22,152 
 Unit of production method depreciation.
Depreciation rate = $58,0000$2,000= $56,000
5800002000/ 100,000 = 56000/100,000=$ 0.56 or 56%
The depreciation rate is $0.56 /cup of coffee
In 2017 5000x 0.56 = $2800 of depreciation expense
In 2018 6500 x 0.56= $3649 of depreciation expense
2017  
Depreciation (cost – year 1 depreciation) = 58000 2800  $55200  
Net value  $55200  
Depreciation on 2018 (55,200 3649)  $51,551  
Question 1 b
 Perpetual inventory FIFO cost allocation
Example of FIFO PERPECTUAL COST ALLSOCATION
Answers
Purchase  Sale  Inventory on hand  
Sept  Quantity  Unit cost  Total
Cost 
Q  Unit
cost 
Total
Cost 
Q  Unit
cost 
Total
Cost 
Begin  20  $60  $1200  20  $60  
3^{rd}  10  $65  $650  10  $65  
7^{th}  30(total)  $1850  21  $100  $2100  9  $65  $585  
16^{th}  5  $70  $350  5  $70  
17^{th}  7  $120  $840  2  $65  $130  
5  $70  $350  
23^{rd}

8  $85  $680  
$2880  $2940  $1065 
2)Periodic inventory – weighted average
Example
Purchase


Sept  Quantity  Unit cost  Total
Cost 
Begin  20  $60  $1200 
3^{rd}  10  $65  $650 
16^{th}  5  $70  $350 
23^{rd}

8  $85  $680 
43  $2880 
Weighted average = $2880/ 43 =$ 66.9/ bracelet
Ending inventory (7) x 66.9 = $468.3.???
Cost of goods sold ????
Question 2
 Operating profit margin
Operating profit margin ratio is related to the operating profit of a period as a percentage of sales for that particular period (Atrill, McLaney & Harvey 2017)
OPM = operating profit (profit before interest & tax) x100 =
Sales
Operating profit of A2M in 2019 = 411,552 = 31.55 %
1,304,336
Operating profit of A2M in 2016 = 52,002 = 14.75%
352,502
Operating profit of A2M in 2017= 138,599 = 25.23%
549,247
2016  2017  2019 
14.75%  25.23%  31.55% 
This ratio represents A2M trading operation before any cost of servicing long term finance are taken into account. The ratio is increasing ..what does it indicate ..
 Inventory turnover period
Inventory turnover period is an efficiency ratio that measures the average period in which the inventories are held by the business (RF).
Average inventory held (opening inventory + closing inventory divided 2) x 365 =
Cost of sales
…..
2016  2017  2018 
 Current ratio: it compares business liquid asset with the short term liabilities.
Formula Current asset = Current ratio of 2016 182,423 = 2.37 times
Current liability 76,808
Current ratio of 2017 Is 258,288 = 2.52 times
102,348
Current ratio of 2019 is 675,699 = 3.28 times
205,389
2016  2017  2019 
2.37 times  2.52 times  3.28 
What does Increasing tend indicate
 Quick ratio (Acid test ratio)
Quick ratio represents the liquidity ratio of a company that is defined as current assets less inventories and repayments. This is a more stringent way to assess business ability to payoff short term liability.
Formula = Current assets (excluding inventory and prepayments)
Current liability
2016 Quick ratio = 182423 – 52556 15099 = 114768 = 1.49 times
76808 76808
2017 quick ratio = 258288 – 2843735957 = 193894 = 1.89 times
102348 102348
2019 quick ratio = 675699 108453 – 49693) = 517553 = 2.51 times
205389 205389
2016  2017  2019 
1.49times  1.89 times  2.51 times 
Evaluate and interpret the results in relation to A2M company
 Debt to asset ratio: it provide information of how much each dollar of asset of business Is financed by debt.
Formula: Total liability
Total asset
2016 debt to asset ratio = 77074 =0.3667 =36.67 %
210152
2017 debt to asset ratio = 102448 = 0.2978 =29.78%
343930
2019 debt to asset ratio = 205616 =0.2069= 20.69 %
993470
2016  2017  2018 
36.67%  29.78%  20.69% 
Evaluate and interpret results
 Times interest earned: is a gearing ratio that divided the operating profit by the interest expense for a period
Formula = operating profit OR EDIT
Interest expense Interest expense
2016 interest cover ratio=
2017 interest cover ratio =
2019 interest cover ratio =
2016  2017  2019 
Evaluate, analyse and interpret result
Question 3
Company analysis (1000 words max)
introduction of company, what they do, significant events, interesting facts of A2M
– Analyse trends, ratio, results of liquidity, efficiency, profitability, gearing and investing.
– PROVIDE REASON/RATIONAL
must satisfy rubric
Cash flow analysis (300 words max)
Pick most significant 4 events as dot points and explain why you think they affect clash flow of
use subheading operating, investing and financing subheading.
– MUST FOLLOW RUBRIC
END
References
Atrill, P, McLaney, E & Harvey, D 2017, Accounting for NonSpecialists, P.Ed Australia, Melbourne, AUSTRALIA, <http://ebookcentral.proquest.com/lib/scu/detail.action?docID=5220551>.