ACC102 – Fundamentals of Accounting II

Elite Education Institute – Australia

This document contains solution to three questions as given in ACC102 – Fundamentals of Accounting
II given at Elite Education Institute – Australia.

The first questions deals with Inventory Valuation of ToobBakko Ltd based on FIFO and Moving Average,
journal entries for missing inventory and part C deals with CT account format ledger of inventory
control, cost of sales and sales based on moving average method.

The second question deals with depreciation method of machinery at Admirable Ltd. Part A deals with
preparation of depreciation schedules for the machinery for the 5-Year period, using the following
methods: a) straight-line, b) diminishing balance, c) sum-of-years-digits, and d) units-of-production with
following headings for each schedule: ‘Year ending June 30’, ‘Annual depreciation expense’,
‘Accumulated depreciation’, ‘Carrying amount at end of year’. Part B deals with report for management,
stating the advantages and disadvantages of each depreciation method, recommendation on choice of
method consistent with the requirements of IAS 16/AASB 116 and showing of total annual cost of
operating machinery and the profit after depreciation.

The third question deals with disposal and revaluation increases and decreases of machines (assets) for
Punchbowl Ltd. Part A deals with ledger accounts to record transaction with respect to purchase, sales,
returns, depreciation, accumulated depreciation, revaluation reserve for transactions up to 30 June
2015. Part B deals with how assets would appear in the financial statements of Punchbowl Ltd as at 30
June 2012, 30 June 2014, and 30 June 2015. Part C deals with showing of machinery account and
accumulated depreciation – machinery account if revaluation on 1 July 2014 had been downwards
instead of upwards.

Price of the document is USD 75. Please mail at alkamurarkaa@gmail.com

Solution 1

Part A – FIFO

Purchase Sales Balance

Date No Cost Total No Cost Total No Cost Total
1-Jul-13 200.00 5.00 1,000.00
30-Jul-13 120.00 5.00 600.00 80.00 5.00 400.00
25-Aug-13 300.00 5.25 1,575.00 80.00 5.00 400.00
300.00 5.25 1,575.00
30-Aug-13 80.00 5.00 400.00
170.00 5.25 892.50 130.00 5.25 682.50
3-Sep-13 450.00 5.30 2,385.00 130.00 5.25 682.50
450.00 5.30 2,385.00
10-Sep-13 (50.00) 5.30 (265.00) 130.00 5.25 682.50
400.00 5.30 2,120.00
30-Sep-13 130.00 5.25 682.50
170.00 5.30 901.00 230.00 5.30 1,219.00
5-Oct-13 300.00 5.40 1,620.00 230.00 5.30 1,219.00
300.00 5.40 1,620.00
8-Dec-13 250.00 5.45 1,362.50 230.00 5.30 1,219.00
300.00 5.40 1,620.00
250.00 5.45 1,362.50
11-Dec-13 230.00 5.30 1,219.00 30.00 5.40 162.00
270.00 5.40 1,458.00 250.00 5.45 1,362.50
21-Feb-14 150.00 5.50 825.00 30.00 5.40 162.00
250.00 5.45 1,362.50
150.00 5.50 825.00
18-Mar-14 100.00 5.60 560.00 30.00 5.40 162.00
250.00 5.45 1,362.50
150.00 5.50 825.00
100.00 5.60 560.00
30-Apr-14 30.00 5.40 162.00
250.00 5.45 1,362.50 130.00 5.50 715.00
20.00 5.50 110.00 100.00 5.60 560.00
2-May-14 (20.00) 5.50 (110.00) 10.00 5.45 54.50
(10.00) 5.45 (54.50) 150.00 5.50 825.00
100.00 5.60 560.00
4-May-14 250.00 5.70 1,425.00 10.00 5.45 54.50
150.00 5.50 825.00
100.00 5.60 560.00
250.00 5.70 1,425.00
6-Jun-14 300.00 5.85 1,755.00 10.00 5.45 54.50
150.00 5.50 825.00
100.00 5.60 560.00
250.00 5.70 1,425.00
300.00 5.85 1,755.00
30-Jun-14 10.00 5.45 54.50
150.00 5.50 825.00
100.00 5.60 560.00 50.00 5.70 285.00
200.00 5.70 1,140.00 300.00 5.85 1,755.00
Part A – Moving Average

Purchase Sales Balance

Date No Cost Total No Cost Total No Cost Total
1-Jul-13 200.00 5.00 1,000.00
30-Jul-13 120.00 5.00 600.00 80.00 5.00 400.00
25-Aug-13 300.00 5.25 1,575.00 380.00 5.20 1,975.00
30-Aug-13 250.00 5.20 1,299.34 130.00 5.20 675.66
3-Sep-13 450.00 5.30 2,385.00 580.00 5.28 3,060.66
10-Sep-13 (50.00) 5.28 (263.85) 530.00 5.28 2,796.81
30-Sep-13 300.00 5.28 1,583.10 230.00 5.28 1,213.71
5-Oct-13 300.00 5.40 1,620.00 530.00 5.35 2,833.71
8-Dec-13 250.00 5.45 1,362.50 780.00 5.38 4,196.21
11-Dec-13 500.00 5.38 2,689.88 280.00 5.38 1,506.33
21-Feb-14 150.00 5.50 825.00 430.00 5.42 2,331.33
18-Mar-14 100.00 5.60 560.00 530.00 5.46 2,891.33
30-Apr-14 300.00 5.46 1,636.60 230.00 5.46 1,254.73
2-May-14 (30.00) 5.46 (163.66) 260.00 5.46 1,418.39
4-May-14 250.00 5.70 1,425.00 510.00 5.58 2,843.39
6-Jun-14 300.00 5.85 1,755.00 810.00 5.68 4,598.39
30-Jun-14 460.00 5.68 2,611.43 350.00 5.68 1,986.96

Part B – Journal Entry for Missing Entry

Under FIFO

Cost of Sales (Dr) (50 x 5.70)  285.00

Inventory (Cr) (50 x 5.70)  285.00

Under Moving Average

Cost of Sales (Dr) (50 x 5.68)  283.85

Inventory (Cr) (50 x 5.68)  283.85

Part C

Sales A/c
Date Particulars Amount Date Particulars Amount
2-May-14 Accounts Receivable 270.00 30-Jul-13 Accounts Receivable 1,080.00
30-Jun-14 Profit and Loss A/c 17,100.00 30-Aug-13 Accounts Receivable 2,250.00
30-Sep-13 Accounts Receivable 2,700.00
11-Dec-13 Accounts Receivable 4,500.00
30-Apr-14 Accounts Receivable 2,700.00
30-Jun-14 Accounts Receivable 4,140.00
17,370.00 17,370.00

Cost of Sales
Date Particulars Amount Date Particulars Amount
30-Jul-13 Inventory 600.00 2-May-14 Inventory 163.66
30-Aug-13 Inventory 1,299.34 30-Jun-14 Profit and Loss A/c 10,256.69
30-Sep-13 Inventory 1,583.10
11-Dec-13 Inventory 2,689.88
20-Apr-14 Inventory 1,636.60
30-Jun-14 Inventory 2,611.43

10,420.35 10,420.35

Inventory
Date Particulars Amount Date Particulars Amount
1-Jul-13 Balance B/f 1,000.00 30-Jul-13 Cost of Sales 600.00
25-Aug-13 Purchases 1,575.00 30-Aug-13 Cost of Sales 1,299.34
3-Sep-13 Purchases 2,385.00 10-Sep-13 Purchases 263.85
5-Oct-13 Purchases 1,620.00 30-Sep-13 Cost of Sales 1,583.10
8-Dec-13 Purchases 1,362.50 11-Dec-13 Cost of Sales 2,689.88
21-Feb-14 Purchases 825.00 20-Apr-14 Cost of Sales 1,636.60
18-Mar-14 Purchases 560.00 30-Jun-14 Cost of Sales 2,611.43
2-May-14 Cost of Sales 163.66 30-Jun-19 Balance C/f 1,986.96
4-May-14 Purchases 1,425.00
6-Jun-14 Purchases 1,755.00

12,671.16 12,671.16
Solution 2:

Part A
Management Report – Advantages and Disadvantages of Depreciation Methods

Straight Line Method - Advantages

It is the simplest of all method of calculating depreciation. It can be applied to all long-term assets. It
remains same throughout the serviceable life of assets. It is widely accepted and usable method of
accounting.

Disadvantages

It does not reflect the difference in usage of assets from one period to another period. It may not
necessarily match costs with revenues in different types of long-term assets. It may not be appropriate
for all class of assets, especially in case of technology related assets. (techievp, 2018)

Sum-of-Digits Method - Advantages

It accelerates the rate of depreciation in early life of assets. As a result, it reduces taxable years in initial
period and hence the taxes payable.

Disadvantages

It is complex to calculate. In case of early stage business, use of this method does not help in saving on
tax liability due to negligible profit to losses in initial period. Higher deduction in initial period gets
compensated by lower deduction in later periods. If the assets are sold in later period, then higher selling
price (higher than the book value at time of sale) over and above book value will lead to taxable income.
(Yuriy, n.d.)

Reducing Balance Method - Advantages

Similar to sum-of-digit method, this method also charges higher depreciation in initial period of asset life
and hence reduces taxable income and thus tax liability.

Disadvantages

This method cannot reduce the written down value of assets to zero if it is desired. Also if the rate of
depreciation is low, it will take considerable number of period to depreciate assets, even though the
assets has become obsolete. (Kathy, 2019)

Unit of Production Method - Advantages

The advantage of this method is that it charges depreciation based on usage of machine and depreciation
is matched to the production quantity. It matches cost more accurately with assets.

Disadvantages

In case of no activity during a year, the asset will not be charged to depreciation regardless of time
depreciation making this method unacceptable. (Interunet, n.d.)
IAS 16

As per the standard, all depreciable assets should be charged to depreciation basis rate derived using
systematic basis over asset’s useful life. The method used over period of time should be consistent unless
at end of each period, if it is considered, after annual (at least) review, inappropriate to charge
depreciation based on previous method for prospective periods basis change in activity or change in
consumption pattern or assets reassessed life cycle. A depreciation method, based on revenue is
inappropriate and hence should be considered. Depreciation begins when the asset is available to use and
continues until the asset is derecognized, even if it is idle. Hence the method units of production are
inappropriate. Considering the clause of “useful life” and the “available to use”, the straight line method
is the most appropriate and widely used method.
Solution 3:

Part A
Asset A/c
Date Particulars Amount Date Particulars Amount
1-Jan-11 Bank A/c $ 33,000 30-Jun-11 Balance C/f $ 33,000
1-Jul-11 Balance B/f $ 33,000 30-Jun-12 Balance C/f $ 33,000
1-Jul-12 Balance B/f $ 33,000 30-Jun-13 Balance C/f $ 33,000
1-Jul-13 Balance B/f $ 33,000 30-Sep-13 Asset For Sale $ 33,000
30-Sep-13 Bank A/c $ 25,000 30-Jun-14 Balance C/f $ 25,000
1-Jul-14 Balance B/f $ 25,000
1-Jul-14 Revaluation Reserve $ 2,839
1-Jul-14 Accumulated Depreciation $ 911 30-Jun-15 Balance C/f $ 28,750

Depreciation
Date Particulars Amount Date Particulars Amount
30-Jun-11 Accumulated Depreciation $ 1,250 30-Jun-11 Profit and Loss A/c $ 1,250
30-Jun-12 Accumulated Depreciation $ 2,500 30-Jun-12 Profit and Loss A/c $ 2,500
30-Jun-13 Accumulated Depreciation $ 2,500 30-Jun-13 Profit and Loss A/c $ 2,500
30-Sep-13 Accumulated Depreciation $ 625
30-Jun-14 Accumulated Depreciation $ 6,075 30-Jun-14 Profit and Loss A/c $ 6,700
30-Jun-15 Accumulated Depreciation $ 6,644 30-Jun-15 Profit and Loss A/c $ 6,644

Accumulated Depreciation
Date Particulars Amount Date Particulars Amount
30-Jun-11 Balance C/f $ 1,250 30-Jun-11 Depreciation $ 1,250
1-Jul-11 Balance B/f $ 1,250
30-Jun-12 Balance C/f $ 3,750 30-Jun-12 Depreciation $ 2,500
1-Jul-12 Balance B/f $ 3,750
30-Jun-13 Balance C/f $ 6,250 30-Jun-13 Depreciation $ 2,500
1-Jul-13 Balance B/f $ 6,250
30-Sep-13 Depreciation $ 625
30-Sep-13 Asset for Sale $ 6,875
30-Jun-14 Balance C/f $ 6,075 30-Jun-14 Depreciation $ 6,075
1-Jul-14 Balance B/f $ 6,075
1-Jul-14 Asset A/c $ 911
30-Jun-15 Balance C/f $ 13,630 30-Jun-15 Depreciation $ 6,644

Asset for Sale

Date Particulars Amount Date Particulars Amount
30-Sep-13 Asset A/c $ 33,000 30-Sep-13 Asset A/c $ 17,000
Loss on Sale (Transferred to P/L A/c)
$ 9,125
Accumulated Depreciation $ 6,875

Revaluation Reserve
Date Particulars Amount Date Particulars Amount
30-Jun-15 Balance C/f $ 2,839 1-Jul-14 Asset A/c $ 2,839
Part B

Balance Sheet Asset Side

Balance Sheet as on Jun 30, 2012

Assets $ 33,000
Less: Accumulated Depreciation $ (3,750)
Net Fixed Assets $ 29,250

Balance Sheet as on Jun 30, 2014

Assets $ 25,000
Less: Accumulated Depreciation $ (6,075)
Net Fixed Assets $ 18,925

Balance Sheet as on Jun 30, 2015

Assets $ 28,750
Less: Accumulated Depreciation $ (13,630)
Net Fixed Assets $ 15,120

Part C

Asset A/c
Date Particulars Amount Date Particulars Amount
1-Jul-14 Balance B/f $ 25,000 1-Jul-14 Revaluation Reserve $ 2,839
1-Jul-14 Accumulated Depreciation $ 911
30-Jun-15 Balance C/f $ 21,250

Accumulated Depreciation
Date Particulars Amount Date Particulars Amount
1 Jul, 2014 Asset A/c $ 911 1-Jul-14 Balance B/f $ 6,075
30-Jun-15 Balance C/f $ 9,253 30-Jun-15 Depreciation $ 4,089

Revaluation Reserve
Date Particulars Amount Date Particulars Amount
1-Jul-14 Asset A/c $ 2,839 30-Jun-15 Balance C/f $ 2,839
References

1. Techievp, 2018, Advantages and Disadvantages of Straight Line Method

https://www.advantagesndisadvantages.com/advantages-disadvantages-straight-line-
method.html
2. Yuriy Smirnov, n.d., Sum of the Years’ Digit Depreciation Method
http://financialaccountingpro.com/sum-of-the-years-digits-depreciation-method/
3. Kathy Adams McIntosh, 2019, Advantages and Disadvantage of Depreciation Methods
https://bizfluent.com/info-8225274-advantages-disadvantages-depreciation-methods.html
4. Interunet, n.d., Units of Production Depreciation Method – Advantages and Disadvantages
http://interunet.com/units-of-production-depreciation-method-advantages-and-disadvantages