Unit 4 Balance Day Adjustments

Unit 4 Balance Day Adjustments - BFA103 FINANCIAL...

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BFA103 FINANCIAL ACCOUNTING AND DECISION MAKING TUTOR NOTES Unit 4 – Balance Day Adjustments Suggested solutions Depreciation a) Straight-line $12,500 - $2,500 5 years (20%) Depreciation expense each year is $2,000 b) Reducing balance Rate is 30% Year Depreciation $ Accumulated Depreciation $ 1 3,750.00 3,750.00 2 2,625.00 6,375.00 3 1,837.50 8,212.5 4 1,286.25 9,498.75 5 900.38 10,399.13 c) Units of production $12,500-$2,500 200,000 Rate is 5 cents per unit. Year Depreciation $ 1 2,500.00 2 3,000.00 3 2,000.00 4 1,000.00 5 1,500.00 F ACULTY OF B USINESS UNIVERSITY OF TASMANIA 19
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BFA103 FINANCIAL ACCOUNTING AND DECISION MAKING TUTOR NOTES Measuring wealth and profit (1) The five assets of the business total $31 300, and the three liabilities total $29 000. Applying the accounting equation, owner’s equity must therefore be $2 300. The net assets figure must also be $2 300 since net assets is A – L. (2) The net assets (A – L) of the business have increased by $10 000 during the year since assets increased by $18 000 but at the same time liabilities increased by $8 000. So, the business must be worth $10 000 more to the owner. Owners’ equity must also have increased by that amount. However, the net profit has the effect of increasing owner’s equity by $23 000. Something must have happened to reduce owner’s equity by $13 000 to explain the overall change of $10 000. This must be the amount of drawings. There is nothing else that could explain this change. (3) The net assets (A – L) of the business have increased by $35 000 during the year since assets increased by $30 000 but at the same time liabilities decreased by $5 000. So, the business must be worth $35 000 more to the owner. Owners’ equity must also have increased by that amount. $20 000 of this increase is explained by the capital contributions of the owner. If there had been no drawings, profit would then have been $15 000 to explain the remainder of the increase in owner’s equity. However, since there was drawings of $6 000, making owner’s equity smaller, profit must have been $21 000 to fit with all the other figures. (4) a. By dividing up the life of the business into periods and producing reports for each period the manager is applying the accounting period convention. b.
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This note was uploaded on 04/30/2011 for the course ECONOMIC 0053665 taught by Professor Allen during the Spring '10 term at American Baptist.

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Unit 4 Balance Day Adjustments - BFA103 FINANCIAL...

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