Rent was paid quarterly in advance on 1 January, April, July, and October each year.

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1 WEEK 2 QUESTIONS 1. A company has sublet part of its offices and in the year ended 30 November 2014 the rent receivable was: Until 30 June 2014 A From 1 July 2014 $8,400 per year $12,000 per year Rent was paid quarterly in advance on 1 January, April, July, and October each year. What amounts should appear in the company s financial statements for the year ended 30 November 2014? Statement of Statement of profit or loss financial position A $9,900 $2,000 in sundry payables B $9,900 $1,000 in sundry payables C $10,200 $1,000 in sundry payables D $9,900 $2,000 in sundry receivables (2 mark s) 2.A business compiling its financial statements for the year to 31 July each year pays rent quarterly in advance on 1 January, 1 April, 1 July and 1 October each year. The annual rent was increased from $60,000 per year to $72,000 per year as from 1 October What figure should appear for rent expense in the business s profit or loss for the year ended 31 July 2015? A $62,000 B $63,000 C $69,000 D $70,000 (2 marks) 3.Beek receives rent for subletting part of its office premises to a number of tenants. In the year ended 31 December 2014 Beek received cash of $318,600 from its tenants. Details of rent in advance and in arrears at the beginning and end of 2014 are as follows: 31 December 31 December $ $ Rent received in advance 28,400 24,600 Rent owing by tenants 18,300 16,900 All rent owing was subsequently received. What figure for rental income should be included in Beek s profit or loss for 2014? A $341,000 B $336,400 C $316,200 D $300,800 (2 marks)

2 4.On1 July 2013 a company had prepaid insurance of $8,200. On 1 January 2014 the company paid $38,000 for insurance for the year to 30 September What figures should appear for insurance in the company s financial statements for the year ended 30 June 2014? Profit or loss Statement of financial position A $27,200 Prepayment $19,000 B $39,300 Prepayment $9,500 C $36,700 Prepayment $9,500 D $55,700 Prepayment $9,500 (2 mark s) 5.A company sublets part of its office accommodation. In the year ended 30 June 2014 cash received from tenants was $83,700. Details of rent in arrears and in advance at the beginning and end of the year were: In arrears In advance $ $ 30 June ,800 2, June ,700 3,000 All arrears of rent were subsequently received. What figure for rental income should be included in the company s profit or loss for the year ended 30 June 2014? A $80,600 B $83,400 C $84,000 D $85,800 (2 marks) 6.A business sublets part of its office accommodation. The rent is received quarterly in advance on 1 January, 1 April, 1 July and 1 October. The annual rent has been $24,000 for some years, but it was increased to $30,000 from 1 July What amounts for this rent should appear in the company s financial statements for the year ended 31 January 2015? Profit or loss Statement of financial position A $27,500 $5,000 in sundry receivables B $27,000 $2,500 in sundry receivables C $27,000 $2,500 in sundry payables D $27,500 $5,000 in sundry payables (2 mark s) 7.During 2014, Benz paid a total of $60,000 for rent, covering the period from 1 October 2013 to 31 March What figures should appear in the company s financial statements for the year ended 31 December 2014? Profit or loss Statement of financial position A $40,000 Prepayment $10,000 B $40,000 Prepayment $15,000 C $50,000 Accrual $10,000 (2 mark s) D $50,000 Accrual $15,000 8.Jared is preparing its financial statements for the year ended 30 June Its draft trial balance includes:

3 (1) A balance for administrative expenses paid in the reporting period (including rent) of $44,064. (2) A balance for prepayment of rent at 1 July 2013 of $4,251. On 31 May 2014 Jared paid its quarterly rent in advance of $7,200. Which of the following will be the figure for administrative expenses in Jared s statement of profit or loss for the year ended 30 June 2014? A $35,013 B $43,515 C $44,064 D $45,915 (2 marks) 9.Brindal acquired five apartments on 1 June 2013 and immediately rented them out to different tenants. Brindal has a credit balance on its rent receivable account in the trial balance extracted as at 31 May 2014 of $22,850. The bookkeeper has calculated that rents in arrears as at 31 May 2014 amounted to $4,490 and rents in advance at the same date amounted to $7,720. What was Brindal s rental income for the year ended 31 May 2014? (iv) $19,620 (v) $22,850 (vi) $26,080 D $37,340 (2 marks) 10.Holly began trading on 1 July The business is now preparing its accounts for the year ended 30 June Rent is charged for the year from 1 April to 31 March, and was $1,800 for the year ended 31 March 2014 and $2,000 for the year ended 31 March Rent is payable quarterly in advance on 1 March, 1 June, 1 September and 1 December. What is the charge to Holly s statement of profit or loss for rent for the year ended 30 June 2014? A $1,650 B $1,700 C $1,850 D $1,900 (2 marks) 11.On 1 June 2014, Heather paid an insurance invoice of $2,400 for the year to 31 May How will this be accounted for in Heather s financial statement for the year ended 31 December 2014? Statement of Statement of profit of loss financial position A $1,000 $1,400 prepayment B $1,400 $1,000 accrual C $1,400 $1,000 prepayment (2 mark s) D $1,200 $1,200 prepayment 12.On1 January, a business had prepaid insurance of $10,000. On 1 August it paid, in full, an On insurance invoice of $36,000 for the year to 31 July What amounts will be included in the financial statements for the year ended 31 December 2014? Statement of Statement of A profit or loss financial position

4 $15,000 $21,000 B $22,000 $23,000 C $25,000 $21,000 D $25,000 $15,000 (2 marks) 1.12 On 1 January, a business had prepaid insurance of $10,000. On 1 August it paid, in full, an insurance invoice of $36,000 for the year to 31 July 2015.

5 What amounts will be included in the financial statements for the year ended 31 December 2014? Statement of Statement of profit or loss financial position A $15,000 $21,000 B $22,000 $23,000 C $25,000 $21,000 D $25,000 $15,000 (2 marks) (24 arks) 13.A business purchased a motor car on 1 July 2014 for $20,000. It is to be depreciated at 20%per year on the straight line basis, assuming a residual value at the end of five years of $4,000, with a proportionate depreciation charge in the year of purchase. The $20,000 cost was correctly entered in the cash book but posted to the debit of the motor vehicles repairs account. How will the business profit for the year ending 31 December 2014 be affected by the error? A Understated by $18,400 B Understated by $16,800 C Understated by $18,000 D Overstated by $18,400 (2 marks) 14.A company s policy as regards depreciation of its plant and machinery is to charge depreciation at 20% per year on cost, with proportional depreciation for items purchased or sold during a year. The company s plant and machinery at cost account for the year ended 30 September 2014 is shown below: Plant and machinery cost 2013 $ $ 1 Oct Balance (all plant 200,000 purchased after 2010) Jun Transfer disposal account 40,000 1 Apr Cash-purchase of plant 50, Sept Balance 210, , ,000 What should be the depreciation charge for plant and machinery (excluding any profit or loss on the disposal) for the year ended 30 September 2014? A $42,000 B $43,000 C $45,000 D $51,000 (2 marks) 15.The plant and machinery at cost account of a business for the year ended 30 June 2014 was as follows: Plant and machinery cost

6 2013 $ 2013 $ 1 July Balance 240, Sept. Transfer disposal account 60, Jan Cash-purchase of plant 160, Jun Balance 340, , ,000 The company s policy is to charge depreciation at 20% per year on the straight line basis, with proportionate depreciation in the years of purchase and disposal. What should be the depreciation charge for the year ended 30 June 2014? A $68,000 B $64,000 C $61,000 D $55,000 (2 marks) 16.A business s statement of profit or loss for the year ended 31 December showed a profit of $83,600. It was later found that $18,000 paid for the purchase of a motor van had been debited to motor expenses account. It is the company s policy to depreciate motor vans at 25% per year, with a full year s charge in the year of acquisition. What would the profit be after adjusting for this error? A $70,100 B $97,100 C $101,600 D $106,100 (2 marks)

7 17.The plant and machinery cost account of a company is shown below. The company s policy is to charge depreciation at 20% on the straight line basis, with proportionate depreciation in years of acquisition and disposal. Plant and machinery cost 2014 $ 2014 $ 1 Jan Balance 280, June Transfer disposal 14,000 1 Apr Cash 48,000 1 Sept Cash 36, Dec Balance 350, , ,000 What should be the depreciation charge for the year ended 31 December 2014? A $64,200 B $67,000 C $68,600 D $70,000 (2 marks) 18.Sam s statement of profit or loss for the year ended 31 December 2014 showed a profit of $83,600. It was later found that $18,000 paid for the purchase of a motor vehicle on 1 January 2014 had been debited to motor expenses account. It is the company s policy to depreciate motor vehicles at 25% per year. What is Sam s profit for the year after adjusting for this error? A $70,100 B $97,100 C $101,600 D $106,100 (2 marks) 19.On 1 January 2012 Joffa purchased a new machine at a cost of $96,720. Delivery costs were $3,660 and internal administration costs of $9,450 were incurred. At that time Joffa planned to replace the machine in five years, when it would have no value, and to depreciate the machine on a straight line basis. Joffa decides on 1 January 2014 that the machine only has one remaining year of useful life. There is no expected change to the residual value at the end of its life. What is the depreciation expense in respect of this machine for the year ended 31 December 2014? A $33,460 B $58,032 C $60,228 D $65,898 (2 marks) 20.On 1 April 2012 Herepath bought a Foxy car for $23,500. The company s depreciation policy for cars is 30% per annum using the reducing balance method. On 1 April 2014 the Foxy was partexchanged for a Vizgo car, which had a purchase price of $28,200. Herepath paid the seller $19,350, in final settlement. What was Herepath s profit or loss on the disposal of the Foxy?

8 A $7,835 profit B $2,665 loss C $5,150 loss D $6,250 loss (2 marks) ANSWERS: 1.B ( 7 / 12 8,400) + ( 5 / 12 12,000) = 9,900 income; 1,000 paid in advance in sundry payables (a customer s advance payment is a liability) 2. D (2 5,000) + (10 6,000) = $70, C Rent received account $ $ Balance 16,900 Balance 24,600 Income (balancing figure) 316,200 Cash 318,600 Balance 28,400 Balance 18, , , C Insurance account $ $ Prepayment 8,200 Expense 36,700 Paid 38,000 Prepayment (38,000 3 / 12 ) 9,500 46,200 46, C Rent receivable account $ $ Arrears b/f 3,800 Prepaid b/f 2,400 Income for the year 84,000 Received 83,700 Prepaid c/f 3,000 Arrears c/f 4,700 90,800 90, D 5 /12 24, / 12 30,000 = 27,500; 2 / 3 7,500 = $5, A Profit or loss: 12 / 18 60,000 = $40,000 Prepayment: 3 / 12 40,000 = $10,000 8.B The opening prepayment of rent of $4,251 needs to be debited to administrative expenses and the closing prepayment of $7,200 2 / 3 = $4,800 needs to be credited. Total administrative expenses will therefore be $44,064 + $4,251 $4,800 = $43,515 9.A Rent account

9 $ $ Advances 7,720 Receipts received 22,850 Profit or loss (balancing figure) 19,620 Arrears 4,490 27,340 27, C $1,800 9 / 12 + $2,000 3 / 12 = $1, C $2,400 7 / 12 = $1,400 charge to profit or loss C $2,400 5 / 12 = $1,000 prepayment in statement of financial position 12.Charge to profit or loss = opening prepayment + ( 5 / 12 36,000). Closing prepayment = 7 / 12 36,000 = $21,000 Answer 2 MCQs DEPRECIATION AND DISPOSALS 13. A Difference between 20,000 and (20,000 4,000) 20% 6 / 12 = $18, B (160,000 20%) + (40,000 20% ¾) + (50,000 20% ½) = $43, D (240,000 20%) + (160,000 20% 6 / 12 ) (60,000 20% 9 / 12 ) = $55, B 83, ,000 4,500 = $97, A (280,000 20%) + (48,000 20% 9 / 12 ) + (36,000 20% 4 / 12 ) (14,000 20% 6 / 12 ) = $64, B $ Draft net profit 83,600 Add: purchase price 18,000 Less: additional depreciation (18,000 25%) (4,500) Adjusted profit 97, C The internal administration costs cannot be treated as part of the asset s cost, so in the first two years depreciation of 2 1 / 5 ($96,720 + $3,660) = $40,152 was charged. This means that the whole of the remaining carrying amount of $60,228 must be expensed on the revision of the asset s useful life. 20.C The internal administration costs cannot be treated as part of the asset s cost, so in the first two years depreciation of 2 1 / 5 ($96,720 + $3,660) = $40,152 was charged. This means that the whole of the remaining carrying amount of $60,228 must be expensed on the revision of the asset s useful life.

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