B assume that green products ltd decides to estimate

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(b)Assume that Green Products Ltd decides to estimate its bad debts expense based on 5% of accounts receivable. What amount of bad debts expense will the business record if it had an Allowance for Doubtful Debts credit balance of $64 000 at 31 December 2015 (i.e. 1 January 2016)? (1.5 marks) (c)Assume the same facts as in part (b), except that there is a $46 000 debit balance in Allowance for Doubtful Debts. What amount of bad debts expense will Green Products Ltd record? (1.5 marks) Distributing prohibited | Downloaded by Linh Nguyen Thuy ([email protected])lOMoARcPSD|1321107
13 (d)What is the weakness of the direct write-off method of reporting bad debts expense? (2 marks) (e)Calculate the Accounts Receivable Turnover ratio and the Average Collection Period ratio. (Use end of year amount only for Accounts Receivable)
(f)Given the table below comment on the trend over the period. 2014 $ 2013 $ 2012 $ 2011 $ Credit Sales 2,000,000 2,250,000 2,500,000 2,750,000 Average Accounts Receivable 250,000 245,000 225,000 220,000 Accounts Receivable Turnover ratio 8 9.2 11.1 12.5 (3 marks) (Question Six: 2+ 1.5 +1.5 + 2 + 3 + 3 = 13 marks) Distributing prohibited | Downloaded by Linh Nguyen Thuy ([email protected])lOMoARcPSD|1321107
14 QUESTION 7 8 MARKS During the current year Fairly Ltd incurred several expenditures. Briefly explain whether the expenditures listed below should be recorded as an operating expense or as an intangible asset. If you view the expenditure as an intangible asset, indicate the number of years over which the asset should be amortised (if applicable). Explain your answer. (a)Spent $30,000 in legal costs in a patent defence suit. The patent was unsuccessfully defended. (2 marks) (b)Purchased a trademark from another company. The trademark can be renewed indefinitely. Fairly Ltd expects the trademark to contribute to revenue indefinitely. (2 marks) (c)Fairly Ltd acquires a patent for $2,000,000 from XYZ Ltd. XYZ Ltd. has spent $1,000,000 on the research and development of it. The patent has a remaining life of 15 years. (2 marks) Distributing prohibited | Downloaded by Linh Nguyen Thuy ([email protected])lOMoARcPSD|1321107
15 (d)Fairly Ltd is spending considerable time and money in developing a different patent for another product. So far $3,000,000 has been spent this year on research. Fairly Ltd is very confident they will obtain this patent in the next few years. (2 marks) (Question Seven: 4 x 2 = 8 marks)

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