# 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

 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

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>.