[arifahrosidi]

Question from ACCA X :

Zed Co has a machine that was initially estimated to have a residual value of $20,000. Technology has now advanced and on 31 December 20X4 the business changes the asset’s estimated residual value to nil.
The machine was purchased on 1 January 20X0 for $250,000 and its estimated useful life (EUL) was ten years. The EUL remains unchanged.
What is the depreciation expense for the machine for the year ended 31 December 20X5?

I’ve solved this question and got it correct (27,000), and I have the solution.

Question from BPP:

A business purchased an asset on 1 Jan 20X1 at a cost of $160,000. The asset had an expected life of 8years and a residual value of $40,000. Straight line method is used to measure depreciation. The financial year ends on 31 Dec.
At 31 Dec 20X3 the estimated remaining life of the asset from that date is now expected to be only 3 more years, but the residual value remains unchanged.
What will be the net book value of the asset as at 31 December 20X3, for inclusion in the statement of financial position?

The answer is 107,500 and I do understand how to solve it.

The BPP’s solution applies the changes in the current year right away, which I do agree because this is considered as a change in accounting estimate; we apply the changes in the current year & future.

So my question is, why did the first question not apply the same way? Are changes in residual value not part of a change in accounting estimate?

[arifahrosidi]

It’s from Section 18.4.2 Inventory Holding Period

[arifahrosidi]

Falls in inventory holding period may be due to:
-bulk buying to take advantage of trade (bulk) discounts
– increasing inventory levels to avoid stockouts (For example, due to erratic demand or where supply is unreliable).

This is taken from Study Hub. I don’t get the logic. If we increase our inventory without a corresponding increase in our sales, doesn’t this worsen our inventory holding period?

Or do these two statements assume that the sales also increase correspondingly?

[arifahrosidi]

Thank you, Sir

[arifahrosidi]

When using profit reconciliation for absorption & marginal, we find the changes in inventory x OAR. My question is to find the changes in inventory, if given actual & budgeted production & sales, do we use actual production vs actual sales OR budgeted production vs actual sales

[arifahrosidi]

Thank you Sir

[arifahrosidi]

How to do question 8

[arifahrosidi]

OK. Thank you!

[arifahrosidi]

1. Which is NOT an example of money market deposit

A. Certificate of deposit
B. Government stock/bond
C. Local authority
D. Bank deposit

Answer : D

2. Which of the following are money market instruments?

1. Deposits
2. Local authority stocks
3. Certificates of deposit

Answer : 1,2,3

I’m confused. Why in the 1st question bank deposit is not included in the money market.

[arifahrosidi]

I understand now. Thank you!

[arifahrosidi]

When do we use the formula to find cost/unit in a process costing,

= (Input cost – Scrap value / Expected output )

and when did we use the method,

Apportioning common cost based on physical basis, market value, NRV

I did a question, and it states: “Process costs are apportioned to joint products on the basis volume of output” but the final answer provided in a process account shows that the cost/unit figure is derived from the first formula

[arifahrosidi]

Alright, thank you for clarifying it.

[arifahrosidi]

Hi, I’m confused about how to differentiate between questions that ask for total variance and those that ask for price variance. To find price variance, we compare actual costs against the flexed budget.

For example, if a question states: “What is the total sales revenue variance comparing actual revenue against the flexed budget?” the final answer provided is total variance.

I find this confusing because “comparing actual against flexed” seems to refer only to price variance and does not take into account activity variance.

Can someone clarify this for me?

[arifahrosidi]

Thank you!

[arifahrosidi]

During 20X1 Fergus buys two vans and a car (70% business use 30% personal use) each costing $10,000 + sales tax. He depreciates vehicles on a straight line basis, vans over five years and cars over six years. What is his depreciation expense to the nearest $ for the year?

Answer: $5,958

Book’s explanation:

Sales tax on motor cars is not recoverable (unless 100% business use can be proved)

Vans (2 x 10,000) / 5 = $4000
Cars (10,000 x 117.5%) / 6 = $1958

My question is why only sales tax for motor cars included in the cost of the asset? I know if sales tax is irrecoverable then we should capitalise it but I don’t understand how they decides that on this question. Plus, what to do with the 70% business use 30% personal use information. Lastly, my BPP Interactive Textbook states that the current standard rate is 20% but the explanation used 17.5%.

[arifahrosidi]

Hi. How to differentiate if the question asks for a share of residual profit or a share of total profit? I did a partnership question and the question stated, ‘profit share’, I thought it was referring to a share of total profit but actually it was for share of residual profit.

[arifahrosidi]

Alright, thank you !

[arifahrosidi]

Gulzar received goods which cost $250 from Baz on credit terms and Gulzar subsequently
paid by cheque. Gulzar then discovered that the goods were faulty and cancelled the
cheque before it was recorded and cashed by Baz.

What accounting entries should Gulzar use to record the cancellation of the cheque the
accounting records?

The answer given is: Dr Accounts Payable, Cr Return Outwards.

My answer is: Dr Bank, Cr Account Payable

My question is why we don’t debit the bank back since the question asks about cancelling the cheque. The question also didn’t mention returning the goods or receiving a credit note, so we’re not supposed to record the return outward yet, right?

[arifahrosidi]

Okay, got it, Thank you very much

[arifahrosidi]

Following a mid-year review of its aged receivables’ listing, Pluto Co identified three irrecoverable debts totalling $630 which should be written off. One of the debts, for $150, was already included in the allowance for receivables.

What accounting entries should Pluto Co make to write off the irrecoverable debts?

The answer is :

Debit Irrecoverable debts $630
Credit Trade receivables $630

My answer :

Debit Irrecoverable debts $480
Debit Allowance for receivable $150
Credit Trade receivable $630

My question is why we didn’t reverse the allowance for receivable ( Dr Allowance for receivable, Credit IRD). I thought if an IRD is already included in the allowance for receivable, we need to reverse/reduce the initial allowance recorded, then recognise the IRD. So the net equation will be Debit Allowance for receivable, Credit Trade receivable.

[arifahrosidi]

Now I understand. Thank you so much and sorry for the late reply.

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