Question 1

Umbilo Ice Cream purchased a freezer at a cost of R 285000.The estimated life of the freezer is 5 years. At which time they will have no salvage value?

The company would like to compare allowable depreciation methods and decide to prepare depreciation method schedules for the fixtures using the strait-line-double declining-balance and sum-of the year digit method of depreciation schedules. Find the answers to these questions for Umbilo Ice Cream.

4.1              What is the book value at the end of the third year using the straight line depreciation method?

4.2              Using the double-declining-balance method of depreciation, what is the book value at the end of the third year?

4.3             With the sum of year-digit method of depreciation what is the cumulative  depreciation at the end of the third year?

4.4             What amount of depreciation will be taken in four years with each method?

 

Question 2

The following information for the 2020 financial year is available for ABF Enterprises:

MAR APR MAY JUN JUL AUG
Cash sales 180 000 200 000 250 000 290 000 320 000 350 000
Credit sales 380 000 410 000 500 000 560 000 560 000 600 000
Total purchases 320 000 340 000 385 000 432 000 445 000 460 000
Salaries and wages 63 000 63 000 63 000 63 000 63 000 63 000
Other expenses 12 000 12 500 12 500 14 500 54 800 59 000

 

Additional information:

Credit sales are collected as follows:

  •  50% within 30 days (the next month)
  •  25% within 60 days
  •  15% within 30 days
  •  10% uncollectible (bad debt)

 

The following discount is given on sales:

  •  10% on all cash sales
  •  5% on credit sales paid within 30 days
  •  Salaries, wages and other expenses are paid in cash.

 

Other expenses include depreciation of R4 000 per month. 55% of all purchases are on credit and are paid for in the following month. The rest represents cash purchases. The bank balance of ABF Enterprises on 1 June 2020 is R200 000. A dividend of R3 000 will be declared on 31 August 2020. Prepare the cash budget for the period 1 June to 31 August 2020.

 

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