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The company’s motor vehicle haulage fleet was replaced during the year.The fleet originally cost $42 million and had been written down to $11 million at the time of its replacement. The gross cost of the fleet replacement was $180 million and a trade in allowance of $14 million was given for the old vehicles.
Sir,why trade in allowance being recorded to the debit side of plant property and equipment while calculating cash flow ?I am always hanged up with the word Credited to something or anything else. Say, Government grant has been credited to operating expenses during the year. So how do i treat it when i am making a t account of govt grant?
Open your T accounts! Imagine that we had not been allowed a trade-in of $14 million but instead we had had to pay the full $180 million
Dr PPE 180
Cr Cash 180But we didn’t have to pay $180! We only paid $166
However, when working out the cash flow and the PPE T account, there needs to be not only the $166 on the debit side of that T account. There needs also to be the “missing” $14
Does that answer you?
If you struggle with “credited” try thinking of it as the “other side” of something that is debited
When we received the government grant, we debited the Cash Account so the other side is credited to the Government Grant Account
I found, as a student, that working out double entry was easiest by “playing” with it! Dr Pan, Cr Food packet; Dr Plate, Cr Pan; Dr Mouth, Cr Plate; Dr Stomach, Cr Mouth; and so on …….
If you find that you’re still struggling, go back and check out John’s lectures on the F3 videos
The following information is relevant: 1. Tangible non-current assets: (i) Land was revalued, giving a surplus of £170 million during the period. (ii) The company’s motor vehicle haulage fleet was replaced during the year. The fleet originally cost £42 million and had been written down to £11 million at the date of its replacement. The gross cost of the fleet replacement was £180 million and a trade-in allowance of £14 million was given for the old vehicles. (iii) The company acquired some new plant on 1 July 2019 at a cost of £120 million. This was paid for in full, on that date, by using some of the £200 million loan that had just been taken out. 2. Environmental Provision: The provision represents an estimate of the cost of environmental improvements relating to the company’s mining activities. 3. Equity share issues: During the year, Chelsea made a bonus issue from the share premium reserve of one share for every ten shares held. Later in the year, Chelsea made a further share issue, at a premium, for cash. 4. Dividends: During the year, Chelsea paid the preference dividend due, the final dividend from 2019 of £180m and an interim dividend for 2020 of £40m. Required: A cash flow statement for Chelsea for the year to 31 March 2020 prepared in accordance with IAS 7 Cash Flow Statements.
The draft statement of profit or loss for Chelsea for the year to 31 March 2020 is as follows: £m £m Revenue 3,655 Cost of sales: Depreciation of property, plant and equipment 366 Impairment of goodwill 36 Other costs 2,522 (2,924) Gross profit for period 731 Other operating income – government grant 50 781 Distribution costs 75 Administrative expenses 56 Environmental provision – increase 67 (198) Profit before interest and tax 583 Interest – loan stock (12) Profit before income tax 571 Income tax expense (177) Profit for the period after tax
2020 2019 £m £m £m £m Assets Non-current assets Property, plant and equipment 2,480 1,830 Goodwill 450 410 –––––– –––––– 2,930 2,240 Current assets Inventories 920 763 Trade receivables 642 472 Cash and cash equivalents ? 34 –––––– –––––– 1,562 1,269 –––––– –––––– Total assets 4,492 3,509 –––––– –––––– Equity and liabilities Equity Equity capital 500 400 10% preference capital 350 350 Reserves Share premium 90 70 Revaluation reserve 170 ? Retained earnings 1,871 1,732 –––––– –––––– 2,981 2,552 Non-current liabilities Loan 200 ? Government grants 210 160 Environmental provision 76 24 –––––– –––––– 486 184 Current liabilities Trade payables 680 518 Accrued interest 4 ? Bank overdraft 63 ? Taxation 228 215 Government grants 50 40 –––––– –––––– 1,025 773 –––––– –––––– Total equity and liabilities 4,492 3,509 –––––– ––––––
Hi Sir,
This is a question from the Kaplan book but I couldn’t find the answer for it as it was online.
I need help please. My exam is on Monday and I need more practice please.
Thank you in advanceIf there is any email address that I can email the question please I will be extremely happy. Please Help. Thank you
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