XYZ Enterprise Part 2

In the journal book --------------------------------- December 31st --=========---------------------68.5 Depreciation expense (machine)….……… : 100,000 028.5 Accumulated depreciation-machine. . : 100,000 ----------------------------------------------------------1) FAURWA company ‘s Fixed asset is composed by: - Lands: 8,720,000 Fr, acquired in 1982, not depreciable Building: 19,940,000 Fr, acquired on January 1st, 1983 depreciable with Straight-line method, at 5% Plants: 10,400,000 Fr, acquired on April 1st ,1983, depreciable with Straight-line method, at 10% Office equipment: 2,868,000 Fr, acquired on March 1st, 1983, depreciable with Straightline method, at 10% Question a) Calculate the annual depreciations of year 1986 b) Record in the journal the depreciations as at December 31st, 1986 c) Present the assets in the balance sheet of December 31st, 1986. 2) Following is the extract of the Trial balance of Rwaexpo Company as at December 31st, 1981 Debit balance Credit Balance 028.4 Accumulated depreciation- Transport equipm. 028.5 Accumulated Depreciation-Plant 22.4 Transport equipment 22.5 Plant 95,000,000 68,000,000 46,000,000 30,500,000 You are informed that: - The company applies the Straight-line depreciation method on its assets - The useful life of 8 years is considered for the plant which is composed by:  A machine A, acquired in beginning of 1974 for 18 millions Fr  A machine B, acquired in the beginning of 1979, for 30 millions Fr  A machine C, acquired during 1981 year. - Transport equipment has been acquired in the beginning of January 1979, except a vehicle Pick-up bought in October 1st, 1981 for 20,000,000 Fr, Requirement 1. Determine the acquisition date of the machine C 2. Calculate the depreciation rate of the Transport equipment 3. The Enterprise’s Manager requests to the accountant, for the pick-up, the depreciation method and to apply declining depreciation method (instead of the straight line method which has been used): a) Present the Depreciation schedule of the Pickup in line with the proposition of the Manager. b) Present the adjustment recording to correct which passed on December 31, in order to be conform with the new depreciation method. 4. The above vehicle Pick up depreciated under the declining balance method according to the request of the Manager is sold by the company as at 3st August 1983 for 7,000,000 Fr. a) Compute the gain/or the loss generated by this transaction (refer to II.4.2) b) Journalize the accounting entry of this transaction in the books of the company. suppose an item of equipment acquired at 8,500,000 Fr is fully depreciated on December 2018. This asset cannot be sold or exchanged, because it doesn’t have any residual value. It is then junked. In January 2019, this equipment will be removed from the books of the company by: - Crediting the Equipment account and - Debiting its accumulated depreciation. _________________ January 2019____________________ 28 Accumulated depreciations -equipment : 8,500,000 22 Equipment……………………………: 8,500,000 ____ (To dispose of fully depreciated equipment) _______________ , assume that a machine costing 900.000 Fr is depreciated at an annual straight-line rate of 20% from January 2010. Assume that the machine is removed from service on April 30 th, 2014 because it is broken and has no one market value. In this situation, the balance of the accumulated depreciation account as of December 31st, 2013 is: 900,000 Fr*20%*4 years = 720,000 Fr. The depreciation for the four months of the current period prior to the asset’s removal from service is 900,000 Fr*20%*4/12 = 60,000 Fr. Therefore, before removing the machine from service and from the books, the first thing to do is to record an entry to update the depreciation for the four months of the current year: ________________ April, 30, 2014______________________ 68 Depreciation expense – Machine…. : 60,000 28 Accumulated depreciations - Machine…: 60,000 (To record current depreciation on machine junked) _________________ _________________________ After this entry, the accumulated depreciation balance becomes: 720,000F + 60,000F = 780,000F The removing entry is then as follows: ________________ April, 30, 2014______________________ 28 Accumulated depreciation – Machine…. : 780,000 84 Loss on disposal of fixed assets………. : 120,000 22 Machine…………………………….… : (To dispose the machine from the assets) _________________ 900,000 _________________________ If an asset is junked before being fully depreciated, there is a loss equal the asset’s net book value at the date it is disposed: 900,000 F (original cost) assume that the machine in above is sold for cash on April, 30, 2014. As done in above, the first thing is to update the depreciation for the period used but not recognized in the books, means for four months. ________________ April, 30, 2014______________________ 68 Depreciation expense – Machine…. : 60,000 28 Accumulated depreciation - Machine… : 60,000 (To record current depreciation on machine before the sale) _________________ _________________________ After recognizing the current depreciation, the net book value of the asset is 120,000 Fr. The entries to record the sale, assuming three different selling prices as follows: a) The machine is sold for 120,000 Fr (Non gain, no loss) ________________ April, 30, 2014______________________ 57 Cash…………………………..…. : 120,000 28 Accumulated depreciation - Machine….. : 780,000 22 Machine………………………………: 900,000 _________________(disposing the machine) _________________________ b) The machine is sold for 170,000 Fr (price over book value) Gain = selling price – Net value book = 170,000 F – 120,000 F = 50,000 F ________________ April, 30, 2014______________________ 57 Cash…………………………..…. : 170,000 28 Accumulated depreciation - Machine….. : 780,000 22 Machine………………………………: 900,000 84 Gain on Disposal of fixed assets……… 50,000 _________________ _________________________ c) The machine is sold for 80,000 Fr (price less than Book value) Loss = Selling price – Net value book = 80,000 F – 120,000 F = (40,000 F) ________________ April, 30, 2014______________________ 57 Cash…………………………..…. : 80,000 28 Accumulated depreciation - Machine….. : 780,000 84 Loss on Disposal of fixed assets……… : 40,000 22 Machine………………………………: 900,000 _________________ _________________________ – 780,000 F (Accumulated depreciation) = 120,000 F (loss arising from the disposal and corresponding to the remaining NBV). , assume the following exchange: Original cost of old vehicle : 5,000,000 Fr Accumulated depreciation of old vehicle: 3,800,000 Fr Book value of old vehicle : 1,200,000 Fr Invoice value of new vehicle : 6,000,000 Fr Cash paid : 5,100,000 Fr Since the old vehicle and cash of 5,100,000 are exchanged for a new vehicle which costs 6,000,000 Fr, the old vehicle must be worth 900,000 Fr. However, the old vehicle has a book value of 1,200,000 Fr, and therefore there is a loss of 300,000 Fr on the disposal of the car: 1,200,000 Fr (book value) – 900,000 Fr (fair market value). So the journal entry to record the exchange is as follows: ________________ ______________________ 22 Vehicle (new)……………………..…. : 6,000,000 28 Accumulated depreciation – vehicle : 3,800,000 84 Loss on disposal of fixed assets : 300,000 22 Vehicle (old)…………………… : 5,000,000 57 Cash…………………………… : 5,100,000 _________________ _________________________ Cost of new asset = List price of new asset – Unrecognized gain Or Cost of new asset = Cash given (Boot) + Book value of old asset assume the example in above, but suppose that the Cash paid in the operation is 4,600,000 F The cost recorded for the new vehicle will be: Invoice of new vehicle – Unrecognized gain = 6,000,000Fr – 200,000 Fr = 5,800,000 Fr, or Book value of old vehicle = 4,600,000 The entry to record this exchange and the payment of cash is as follow: 22 Vehicle (new)……………………..…. : 5,800,000 28 Accumulated depreciation – vehicle : 3,800,000 22 Vehicle (old)…………………… : 5,000,000 57 Cash…………………………… : 4,600,000 _________________ _________________________  Fr + 1,200,000 Fr = 5,800,000 Fr  Boot (balance paid)+Book value of the old vehicle = 4,600,000 Fr + 1,200,000F = 5,800,000 Fr A warehouse, which built on January 2001 at 18,000,000 Fr, has been depreciated with Straight-line method, and its useful life is estimated at 30 years. In 2004, an expenditure of 3,150,000 Fr to enlarge the warehouse increases the usefulness of the warehouse, which finished and used from October, 1st, 2004. Before recording of the enlargement, the depreciation of period January 1 st, 2004 – September 30th , 2004 must be recorded. That is : (18,000,000 F/30)9/12 = 450,000 Fr. The entry recorded is as follows: ---------------------------------October, 1st, 2004-----------------------------------68 Depreciation expense (warehouse) : 450,000 028 Accumulated depreciation (Warehouse) : 450,000 -------------------------------------------------After this entry, the balance of the account 0281 Accumulated depreciation-Warehouse is 2,250,000, that is the depreciation of the years 2001-2003 (600,000 Fr*3) and the precedent depreciation of the period 01/01/2004- 09/30/2004 : 450,000 Fr. The net book value of the Warehouse while the enlargement is finished (but before taking consideration of the enlargement expenditure) is 15,750,000 Fr, thus 18,000,000 Fr2,250,000 Fr. Now, the cost of enlargement would be added to the asset account as follows: ----------------------1er October 2004-----------------22.1 Warehouse…………… : 3,150,000 56.1 Bank… ………… .….. : 3,150,000 (Cost to enlarge the Warehouse) --------------------------------------After this entry, the balance of account «22.1 Warehouse» is 21,150,000 Fr, and the account «028. Accumulated depreciation-Warehouse » still indicates the balance of 2,250,000 Fr. Thus, the net book value is 21,150,000 F – 2,250,000 F =18,900,000F. Therefore, the new Depreciable cost is as the Net book value on October, 1 st, 2004,, that is 18,900,000 F. For computing the new annual deprecation, the new depreciable cost is divided by the remaining useful life. Initially, estimated useful life was 30 years (360 months), but 3 years and 9 months have been used, it remains 26 years and 3 months ( that is 315 months). Monthly depreciation of 60,000 Fr will begin on October 1 st , 2004, means the new depr5eciable cost (18,900,000 F), divided by the remain useful life ( 315 months). The following entries are to be recognized on December 31st, 2004 and 2005: ---------------------------December, 31, 2004---------------------------68 Depreciation expense (Warehouse) : 180,000 028.1 Accumulated depreciation –Warehouse : 180,000 (To record the depreciation from October to December 2004) -------------------------------------------------At the end of 2005 and the subsequent years: ---------------------------December,31, 2005-----------------------------------68 Depreciation expense (Warehouse) : 720,000 028.1 Accumulated depreciation –Warehouse : 720,000 (Annual depreciation : 2005) -------------------------------------------------------------Example (b): As said previously, a capital expenditure on the asset can extend its useful life. For example, an equipment which original cost is 4,000,000 F would operate 10 years in the business. Thus, after 8 years in operating, its Book value is 800,000 F (original cost (4,000,000 Fr) – Accumulated depreciation (3,200,000 F)). At the end of its eighth year, a capital expenditure worth 1,000,000 F is done to update the equipment, which thereby extend its life of 4 years over the original estimated useful life. In this situation, the capital expenditure will be recorded as follows: 22.2 Accumulated depreciation- Equipment… : 1,000,000 56.1 Bank… ………… .……………………. : 1,000,000 (Cost to update the equipment) --------------------------------------Therefore, after this entry, the new Net Book value becomes 1,800,000 F (4,000,000 F – 2,200,000 F). The new annual depreciation is computed by dividing the new Net Book value by the remain useful life, that is 6 years: 2 years remaining on the original estimated life, plus 4 years extension arising from the updating of the equipment. Annual depreciation the for six next years will be 1,800,000 Fr/ 6 years = 300,000 Fr. Note that if the expenditure is being made in the middle of the fiscal year, before its recording, it is important to entry the depreciation not recorded yet. For example, a company purchases merchandises on credit for 1,000,000 RWF Buyer Seller Dt Inventory :1,000,000 Dt Account receivable: 1,000,000 Ct Accounts payable: 1,000,000 Cr Sale…………….: 1,000,000 Account payable is an account with credit balance by nature, however it can be a debit balance (if, for example, a deposit is done on a purchase order). Ex: I place a purchase order of 400,000 Fr with my supplier COBAR, but he requires an advance of 50% when ordering. a) When ordering Dt 40.6 Account payable-COBAR, deposit 200,000 Ct Dt 45 Bank Ct 200,000 a) At delivery Dt (1) 30 Inventory Ct 400,000 Dt 40.1 A/P -COBAR Ct (2) 200,000 400,000 (1) 40.6A/P -COBAR, deposit 200,000 (2) : The following entries are typical for a note used to purchase inventory. Beneficiary Kigali adress September 2020 Place : Date : 30th IN TRUST BOOKS (BUYER) ____________30th September 2020________ Inventory……………………..: 1,000,000 Note payable/ SOFEC Ltd…..: 1,000,000 (Purchased inventory on a one year, 10% note)_____ IN SOFEX BOOKS (SELLER) ____________30th September 2020________ Note receivable/ TRUST Ltd ………..: 1,000,000 Sales…………………………………: 1,000,000 (Sale inventory on a one year, 10% note)_____ At year end, it is necessary to accrue the interest expense for 3 months as follows: ________31st December 2020_______________ Interest expense (1,000,000 F*10%*3/12): 25,000 Interest payable…………………………: 25,000 (Accrued interest expense at year-end)_____ ____________31st December 2020________ Interest receivable……….………..: 25,000 Interest income…..………………: 25,000 (Accrued interest income at year-end, 10% note)_____ The interest accrual at 3st December 2020, allocated 25,000 Fr of the interest on this note to 2020. During 2021, the interest on this note 75,000 Fr (1,000,000 Fr*10%*9/12). ________30th September 2021_______________ Note payable/ SOFEC Ltd………………..: 1,000,000 Interest payable…………………………...: 25,000 Interest expense (1,000,000 F*10%*9/12) : 75,000 Cash……………………………………...: 1,100,000 (Paid note and interest at maturity)_______ III.2. OTHER SHORT TERM PAYABLES 42 Employees account: ________30th September 2021_______________ Cash…………….………………..: 1,100,000 Interest receivable.………………….…...: 25,000 Interest income (1,000,000 F*10%*3/12) : 75,000 Note receivable/ TRUST Ltd ………….: 1,000,000 (Paid note and interest at maturity)_______ This account records the receivables and debts that arise between the employer and the employees. Its nature is mixed, i.e. it can be a debit balance or a credit balance depending on the nature of the transactions it has recorded. Here are the transactions that affect this account: Dt 42 PERSONNEL Ct Is debited by the amount: Is credited by the amount: - Advances salary to the staff - Gross salary due to the staff - Other amounts due by the staff to the company - Repayment done by the staff for diverse reasons EXERCICE 1 As at 31st December 2010, a Company provided for its customers as follows: CLIENT 1. Silas 2. Sara 3. Serge 4. Samson RECEIVABLE PROVISION % 850,000 Fr 30% 300,000 Fr 40% 1,300,000 Fr 20% 900,000 Fr 10% PROVISION AMOUNT 30% * 850,000 Fr= 255,000 Fr 40%*300,00 Fr= 120,000 Fr 20%*1,300,000 Fr=260,000 Fr 10%*900,000 Fr = 90,000 Fr During 2011, the settlements that took place have been credited to Doubtful accounts receivable, without any other adjustment. Here is the status of collections recorded and the conclusion on the clients as at December 31, 2011:  Silas paid 750,000 Fr and it is his final settlement to his account balance  Sara died during the year, her receivable is totally and completely lost  Serge paid 960,000 Fr and will no longer pay anything  Samson: his provision is to be increased to 25%  On the other hand, on December 31, 2011, according to the client’s analysis, another customer, Mrs. Sylvie, debtor of 720,000 Fr, begins to be doubtful and that a 40% provision must be made in his account. Requirement Record the required transaction entries in the Journal as of 31st December 2011. EXERCICE 2 Following is the status of doubtful accounts receivable as at 31st December 2018 along with their corresponding provisions which have been provided for: Client name Mutendeli Kibiliti Receivable amount 170,000 Fr 235,000 Fr Provision made 60 % 40 % Ndumane Rangira 430,000 Fr 112,000 Fr 30 % 50 % During 2019, the accountant has recorded the settlements done by these clients directly in their Doubtful accounts without any other adjustment. Settlements collected: Mutendeli: 110,000 Fr, Kibiliti : 50,000F Fr et Ndumane : 300,000 Fr. Status as at 31st December 2019 Mutendeli totally insolvent, any other recovery from him is awaited. For Ndumane and Kibiliti, it is decided to bring their provision at 70% of the amount due at that date of 31st December 2019 For Rangira, it is deemed essential to increase the provision from 50 to 60%. In addition, two other customers are to be classified among the doubtful customers: Sangano and Birahu, debtors of 270,000 Fr and 192,000 Fr respectively. On the debt of each, the recovery hope is estimated at 60%. Requirement Record the required transaction entries in the Journal as of 31st December 2019. EXERCICE 3 In the accounts of the DUPORT company, the doubtful customers account balance is debit of 981,530 Fr and the Allowance for Uncollectible Accounts receivable balance is credit of 521,800 Fr. Status of Doubtful accounts as at 31st December N-1 Client Mayeri Dunia Moussa Salama Total Debit balance Provision as at 31/12/N-1 203,990 Fr 86,000 Fr 274,200 Fr 138,720 Fr 248,350 Fr 146,580 Fr 254,990 Fr 150,500 Fr 981,530 Fr 521,800 Fr During the accounting year N:  Mayeri and Moussa paid 75,000 Fr and 80,000 Fr respectively for the balance of their accounts (final settlement)  Dunia paid 45,000 Fr, but according to the latest information obtained, we can still hope for a certain sum recovery in the year N + 1.  Salama has disappeared, and his receivable can be considered as definitively lost. As of December 31st , N, two new bad debts were reported: Mano: debit balance: 609,600 Fr Ndumiwe: debit balance: 407,980 Fr It is decided to constitute a provision of 40% for the first and 60% for the second. The payments from doubtful customers during the year N gave rise to the entries such as follows: 57 41 ------------------Date---------------------Cash………………………… … Account receivable x …… -------------------------------------- Requirement ……. …….. Record the required transactions in the journal as at 31/12/N Mr. Boulanger, supplier of radios, sent to his customer, Mr. Lamontagne, 50 radios, total invoice sent to the customer: 1,250,000 Fr or 25,000 Fr per radio. When opening the packages, Mr. Lamontagne notices that among the radios delivered, there are 8 which do not have a volume button, and he decides to return back them to his supplier, Mr. Boulanger, with an explanatory note to support. Following this return, Boulanger sends to Lamontagne a corresponding credit memo invoice. Sale invoice (Lamontagne books (Buyer) (Boulanger books (Seller) 30 Inventory…………………. : 1,250,000 40 Payable-Supplier Boulanger : 1,250,000 41A/R- Customer Lamontagne : 1,250,000 70Sales……………………….. : 1,250,000 -------------------------------------60 Cost of Goods sold : XX 30 Inventory XX -------------------------------------- Credit memo 40.1 Payable-Supplier Boulanger : 200,000 30 Inventory……………………. : 200,000 70 Sales……………………….: 200,000 41 A/R- Customer Lamontagne : 200,000 30 : Inventory : XX 60 Cost of Goods sold : XX ------------------------------------- Notice.: In the case of the Periodic inventory system, the account 30 stock of goods account with the "39 Purchase of goods" account. : Supplier’s X invoice amounting 708,000 Fr ( VAT of 108,000 F included) Customer’s books Supplier’s books 30 Inventory : 708,000 41 Client A/R-customer Y :708,000 40 A/P -supplier X : 708,000 70 Sales : 600,000 43 RRA-VAT Payable … : 108,000 Example 2 : Corresponding entries of the following invoice issued by the supplier to the customer: Gross sale price ……… Discount :10% (business volume) Net commercial Discount : 2% ( early payment) Net to pay before tax………… VAT (18%) ……………. Net to pay (tax included)..….. Customer’s book 30 Inventory 3,176,280 40 Account payable 3,122,280 77 Interest received 54,000 3,000,000 F (300,000 F) 2,700,000 F (54,000 F) 2,646,000 F 476.280 F 3,122,28 0F Supplier’s books 41 Account receivable 3,122,280 67 interest paid 54,000 70 Sales 2,700,000 : On November 1st , 2018, we received from our tenant who is renting our house a rent payment of 210,000 F covering the period November 2018 to April 2019. 1st Nov 2018 56 Bank ……………………….. : 210,000 74.2 Rent revenue ……………. .: 210,000 31 Dec 2018 74.2 Rent revenue ……………………. : 140,000 47.2 Unearned rent revenue …… : 140,000 (jan –march 2019 : 210,000*4/6) 1st January 2019 47.2 Unearned rent revenue ……………. : 140,000 74.2 Rent revenue …………………… : 140,000 2018 income statement reports a rent revenue of 70,000 F and the balance sheet reports an unearned revenue of 140,000F as a liability. : On November 1st , 2018, we received from our tenant who is renting our house a rent payment of 210,000 F covering the period November 2018 to April 2019. 1st Nov 2018 56 Bank ……………………….. : 210,000 74.2 Rent revenue ……………. .: 210,000 31 Dec 2018 74.2 Rent revenue ……………………. : 140,000 47.2 Unearned rent revenue …… : 140,000 (jan –march 2019 : 210,000*4/6) 1st January 2019 47.2 Unearned rent revenue ……………. : 140,000 74.2 Rent revenue …………………… : 140,000 2018 income statement reports a rent revenue of 70,000 F and the balance sheet reports an unearned revenue of 140,000F as a liability.