Annual Depreciation Expense Methods Question
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.
Very esy work for accoutning experts!
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= $56,000
580000-2000/ 100,000 = 56000/100,000=$ 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 | ||||
| 3rd | 10 | $65 | $650 | 10 | $65 | ||||
| 7th | 30(total) | $1850 | 21 | $100 | $2100 | 9 | $65 | $585 | |
| 16th | 5 | $70 | $350 | 5 | $70 | ||||
| 17th | 7 | $120 | $840 | 2 | $65 | $130 | |||
| 5 | $70 | $350 | |||||||
| 23rd
|
8 | $85 | $680 | ||||||
| $2880 | $2940 | $1065 | |||||||
2)Periodic inventory – weighted average
Example
| Purchase
|
|||
| Sept | Quantity | Unit cost | Total
Cost |
| Begin | 20 | $60 | $1200 |
| 3rd | 10 | $65 | $650 |
| 16th | 5 | $70 | $350 |
| 23rd
|
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 – 28437-35957 = 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 Non-Specialists, P.Ed Australia, Melbourne, AUSTRALIA, <http://ebookcentral.proquest.com/lib/scu/detail.action?docID=5220551>.
