# Question 1: Perpetual Inventory System with Returns

During the year ended 30 June 2014, TooBakko Ltd sold each unit of its goods at \$9. Purchases and sales of the goods are shown below. Ignore GST.

2013

 July 1 Inventory on hand 200 units@ \$5.00 each 30 Sales 120 units Aug. 25 Purchases 300 @ \$5.25 30 Sales 250 units Sept. 3 Purchases 450 units @ \$5.30 10 Purchases returns 50 damaged units from 3 September purchase 30 Sales 300 units Oct. 5 Purchases 300 units @ \$5.40 Dec. 8 Purchases 250 units at \$5.45 2014 11 Sales 500 units Feb. 21 Purchases 150 units @ \$5.50 Marc 18 Purchases 100 units at \$5.60 April 30 Sales 300 units May 2 Sales returns 30unitsfrom 30April sales, goods returned to inventory 4 Purchases 250 units @ \$5.70 June 6 Purchases 300 units @ \$5.85 30 Sales 460 units

TooBakko Ltd uses a perpetual inventory system.

## Required

1. Using dollars and cents in appropriate inventory records, determine the cost of the inventory at 30 June 2014 under the following inventory cost flow assumptions:
• FIFO
• Moving average (round to the nearest cent).
2. Assuming that a physical count at 30 June 2014 determined that only 300 units remained in inventory, prepare the journal entry to record the fact that some units had gone missing.
3. Using the moving average method, prepare the Inventory Control, Cost of Sales and Sales accounts CT-account format), assuming that these accounts are balanced yearly on 30 June. Assume as well that the physical count of inventory was as mentioned in requirement B above.

# Question 2: Depreciation of Machinery

In early July 2013 Admirable Ltd is considering the acquisition of some machinery for \$1200 000 plus GST to be used in the manufacture of a new product. The machinery has a useful life of 10 years, during which management plans to produce 500 000 units of the new product. The residual value of the machinery is \$100 000.

The following projections were made in order to select a depreciation method to be used for the machinery:

 Year ended 30 June Units of output Repairs  and maintenance Profit  before depreciation 2014 2015 50 000 45000 \$ 70000 60000 \$350000 340000 2016 55000 90000 355000 2017 58000 95000 360000 2018 60 000 100000 380000

In calculating  the  profit  before  depreciation,  all  expenses  have  been  deducted,  including  the repairs and maintenance expense.

## Required

As the accountant for Admirable Ltd, prepare separate depreciation schedules for the machinery for the 5-year period, using the following depreciation methods: (a) straight-line, (b) diminishing balance, (c) sum-of-years-digits, and (d) units-of-production. Use the  following  headings  for each schedule: ‘Year ending 30 June’, ‘Annual depreciation expense’, ‘Accumulated depreciation’, ‘Carrying amount at end of year’.

# Question 3: Disposal and Revaluation Increases and Decreases

On 1January 2011, Punchbowl Ltd bought a machine for \$33000 cash; its useful life was 12years and its residual value was \$3000. It was decided to depreciate the machine by the straight-line method. On 30 September 2013, the machine was traded into Leichhardt Ltd for a new model, the total cost being \$25 000. Leichhardt Ltd allowed \$17000 for the old machine. It was decided to depreciate the new machine at the rate of 45% p.a. by the diminishing-balance method. Residual value of the new machine was \$7000.

On 1 July 2014, Punchbowl Ltd decided to adopt the revaluation model and revalue  its machine upwards to reflect fair values. This represented a 15% increase in the carrying amount of the machine. The diminishing-balance method of depreciation was continued at the same rate. The accounting period ended on 30 June each year. At 30 June 2015, the carrying amount of the machine was approximately equal tofair value.

## Required

1. Prepare relevant ledger accounts to record the above transactions up to 30 June 2015. Ignore GST.
2. Show how the asset would appear in the financial statements of Punchbowl Ltd as at 30 June 2012, 30 June 2014 and 30 June 2015.
3. Show the Machinery account and Accumulated Depreciation -Machinery account if the revaluation on 1 July 2014 had been downwards instead of upwards.

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