Question 1

Nevertire Ltd purchased a delivery van costing $52,000. It is expected to have a residual value of $12,000 at the end of its useful life of 4 years or 200,000 kilometres. Ignore GST.

Required:

  1. Assume the van was purchased on 1 July 2019 and that the accounting period ends on 30 June. Calculate the depreciation expense for the second year using each of the following depreciation methods
    • straight-line
    • diminishing balance (depreciation rate has been calculated as 31%)
    • units of production (assume the van was driven 50,000 kilometers in the first year and 78,000 kilometres during the second financial year).
  2. Record the adjusting entries for the depreciation at the end of the second financial year using straight-line method.
  3. Show how the van would appear in the balance sheet prepared at the end of year 2 using Straight-line method.

 

Question 2

The following information is related to Sunglow Solar Ltd:

  • Sales for the year ended 30 June 2019 was $1,200,000
  • Provision for warranties before adjustment was $36,000

At 30 June 2019, Sunglow Solar Ltd. adjusted its Provision for Warranties so that it would be equal to 4% of sales for the year ended on that date.

On 16 September 2019, a successful claim for warranty on faulty goods to the cost of $700 was made on Sunglow Solar Ltd.

Required:

  1. Prepare the general journal entry at 30 June 2019 to adjust the Provision for Warranties to the required level.
  2. Record the payment of the warranty claim on 16 September 2019 in general journal format.
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