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

 

 

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>.