Accounting Case Studies: Depreciation And Inventory Management

Assessment Question 1

In the books of Nicolaidis Ltd
Journal Entries
Sl. No.	Date Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	Particulars	Dr./Cr.	Amt ($)	Amt ($)
(a)	2017	Machinery	Dr.	700,000
	1-Jan	GST receivable	Dr.	70,000
		To Cash at bank	Cr.		770,000
		(Being machines purchased)

(b)	2022	Depreciation on Machinery	Dr.	60,000
	31-Dec	To Acccumulated Depreciation on Machinery	Cr.		60,000
		(Depreciation on trucks – (700000-100000)/10

(c)	2023	Accumulated Depn on Machinery	Dr.	360,000
	Jan	Write back of Acc Depn – machinery – revaluation	Cr.		360,000

		Machinery	Dr.	160,000
		To Gain on revaluation of machinery	Cr.		160,000
		(Revaluation of machinery being made)

	31-Dec	Depreciation on Machinery	Dr.	70,000
		To Acccumulated Depreciation on Machinery	Cr.		70,000
		(Depreciation on trucks – (500000-80000)/6

(d)	2023	Cash at Bank	Dr.	220,000
	31-Dec	To GST Payable	Cr.		200,000
		TO Proceeds from Sale – Machinery	Cr.		20,000
		(Being amount received on sale of machinery)

		Carrying amount – Machinery	Dr.	215,000
		Accumulated Depreciation – Machinery	Cr.	35,000
		To Machinery A/C	Cr.		250,000

In the given case, there would be no depreciation for the year ended 31^st December 2028 on the second machine as depreciation per annum as per straight line method would come out to $35000 per annum and by the end of 2027, the machine would be fully depreciated(Das, 2017). In case the management of the company knew earlier that the machinery will be used even beyond 2028, then there should have been a change or revision in the useful life of the asset prior to 2028. Now that the carrying value of the machine has reached to residual value, it is impossible to change further depreciation on the same(Dichev, 2017).

Value of one machine at beginning of 2023: $ 250000

Depreciation per year : $ 35000

31/12/2023: 250000-35000 = 215000

31/12/2024: 215000-35000 = 180000

31/12/2025: 180000-35000 = 145000

31/12/2026: 145000-35000 = 110000

31/12/2027: 110000-35000 = 75000

Therefore, left over depreciation to be charged for the year 2028 = 75000 – 50000 (residual value) = $ 25000

assessment Question 2

Sales Journal
Date	Account	Post Ref.	Sales	GST Payable	Receivable	Cost of Sales
9/6	4100 units @ $5	Yes	20,500	2,050	22,550	9,020
21/6	3100 units @ $5	Yes	15,500	1,550	17,050	6,875
24/6	2900 units @ $5	Yes	14,500	1,450	15,950	6,525
30/6	2600 units @ $5	Yes	13,000	1,300	14,300	6,150
			63,500	6,350	69,850	28,570
			(400)			(500)

Purchases Journal
Date	Account	Post Ref.	Inventory	GST Receivable	Payable
4/6	4600 units @ $2.25	Yes	10,350	1,035	11,385
12/6	4100 units @ $2.40	Yes	9,840	984	10,824
26/6	3100 units @ $2.50	Yes	7,750	775	8,525
			27,940	2,794	30,734
			(500)

General Journal
Date	Particulars	Dr./Cr.	Amt ($)	Amt ($)
30/6	Inventory loss	Dr.	120
	To inventory	Cr.		120
	(Shortage of stock recorded)

General Ledger
Sales (No. 400)
Date	Explanation	Posting Ref.	Debit	Credit	Balance
30-Jun	Balance	SJ		63,500	63,500


General Ledger
Inventory(No. 500)
Date	Explanation	Posting Ref.	Debit	Credit	Balance
1-Jun	Balance				13,420
30-Jun	Purchases	PJ	27,940		41,360
30-Jun	Cost of Sales	PJ		28,570	12,790
	Missing Inventory	PJ		120	12,670

Tamworth Trading Ltd
Income Statement
for the month ended June 30	Amt ($)
Income
Sales	63,500
Less: Sales Return and other allowances	–
Net Sales	63,500
Less: Cost of Goods Sold	28,570
Less: Inventory Loss	120
Gross Profit	34,810
Less: Other indirect expenses	–
Net Profit	34,810

Table 1: Workings for Straight Line and WDV Method
Particulars	Amt ($)
Cost of machinery (GST inclusive)	1,320,000
Less: GST @ 10%	120,000
Actual Cost of machinery	1,200,000
Life of machine = 10 Years
Residual value	100,000
Depreciable Amount	1,100,000
Depreciation each Year (St. Line method)	110,000

Depreciation Rate (Written Down value method)
=100 (1-Life*(Salvage Value/Cost)^1/2))
58%

In the books of Masterton Ltd
Sl. No.	Method of Depreciation	2020	2021	2022	2023	2024	Total
(i)	Straight Line Method (Table 1)	110,000	110,000	110,000	110,000	110,000	550,000
(ii)	Diminishing Balance Method	700,000	291,667	121,528	50,637	21,099	1,184,930
(iii)	Sum of year’s Digit	200,000	180,000	160,000	140,000	120,000	800,000
(iv)	Units of Production	110,000	99,000	121,000	127,600	132,000	589,600

Diminishing Balance method = Cost * Rate of depreciation computed as table 1

Particulars	2020	2021	2022	2023	2024	Total
Opening Book value	1,200,000	500,000	208,333	86,806	36,169
Depreciation	700,000	291,667	121,528	50,637	21,099	1,184,930
Ending Book Value	500,000	208,333	86,806	36,169	15,070

Sum of years’ digit method = (Remaining life / Sum of the years digits) x (Cost – Salvage value)

Particulars	2020	2021	2022	2023	2024	Total
Remaining Life	10	9	8	7	6	55
Opening Book value	1,100,000	900,000	720,000	560,000	420,000
Depreciation	200,000	180,000	160,000	140,000	120,000	800,000
Ending Book Value	900,000	720,000	560,000	420,000	300,000

Units of Production method = (Number of units produced / Life in number of units) x (Cost – Salvage value)

Particulars	2020	2021	2022	2023	2024	Total
Production Units	50,000	45,000	55,000	58,000	60,000	500,000
Opening Book value	1,100,000	990,000	891,000	770,000	642,400
Depreciation	110,000	99,000	121,000	127,600	132,000	589,600
Ending Book Value	990,000	891,000	770,000	642,400	510,400

References

Das, P., 2017. Financing Pattern and Utilization of Fixed Assets – A Study. Asian Journal of Social Science Studies, 2(2), pp. 10-17.

Dichev, I., 2017. On the conceptual foundations of financial reporting. Accounting and Business Research, 47(6), pp. 617-632.

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