Questions(5) - University of the West Indies Department of...

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University of the West Indies Department of Management Studies MS 15D Financial Accounting Tutorial #5 Plant, Intangible Assets, Natural Resources and Liabilities 1. Exercise 9.2 – page 393 Identify the following expenditures as capital expenditure or revenue expenditures: a) Immediately after acquiring a new delivery truck, paid $225 to have the name of the store and other advertising material painted on the vehicle. b) Painted delivery truck at a cost of $250 after 2 years of use. c) Purchased new battery at a cost of $40 for 2-year old delivery truck. d) Installed an escalator at a cost of $12,500 in a three-story building that had been used for some years without elevators or escalators. e) Purchased a pencil sharpener at a cost of $8.50. f) Original life of the delivery truck had been estimated at 4 years and straight line depreciation of 25% yearly had been recognized. After 3 years’ use, however, it was decided to recondition the track thoroughly, including adding a new engine. 2. Exercise 9.4 – page 393 (Modified - For part a.2 use a Reducing Balance rate of 34% and use the Sum of the Years’ Digits (SYD) method for part a.3) On January 2, 2001, Jansing Corporation acquired a new machine with an estimated useful life of 5 years. The cost of the equipment was $40,000 with a residual value of $5,000. a) Prepare a complete depreciation table under the three depreciation methods listed below. Use a format similar to the illustrations on slides 16, 20 and 23 of the PowerPoint notes. In each case, assume that a full year of depreciation was taken in 2001. 1. Straight-Line. 2. Reducing Balance at 34%. 3. Sum of the Years’ Digits (SYD). b) Comment on significant differences or similarities that you observe among the patterns of depreciation expense recognised under each of these methods. 3. Exercise 9.7 – page 394 Bedford Bus Service traded in a used bus for a new one. The original cost of the old bus was $52,000. Accumulated depreciation at the time of the trade-in amounted to $34,000. The new bus costs $65,000 but Bedford was given a trade-in allowance of $12,000. a) What amount of cash must Bedford pay to acquire the new bus? b) Compute the gain or loss on the disposal for financial reporting purposes.
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