Question:35.
Chaudhary Property dealer Inc. acquired on January 1, 2004, a tract of property containing timber at a cost of Rs. 8000,000. After the timber is removed, the land will be worth about Rs. 3,200,000 and will be sold to another party. Costs of developing the site were Rs. 800,000. A building was erected at a cost of Rs.160,000. The building had an estimated physical life of 20 years and wil have an estimated salvage value of Rs. 80,000 when the timber is gone. It was expected that 50,00,000 board feet of timber can be economically cut. During the first year, 16,000,000 board feet were cut.The units-of –production basis is used to depreciate the building.
Required: Prepare the entries to record:
1. The acquisition cost the property.
2. The development costs.
3. Depletion costs for the first year.
4. Depreciation on the building for the first year.
Solution :
1. Land……………………. 3,200,000
Timber Stands …………. 4,800,000
Cash 8,000,000 To record purchase of land and timber
2. Timber Stands ……………………… 800,000
Cash ……………………… 800,000
3. Depletion Expenses (a)………………... 1,792,000
Accumulated Depletion – Timber Stands…….. 1,792,000
To record the depletion expenses for 2004
4. Depreciation Expense – Buildings (b) 25,600
Accumulated Depreciation – Buildings 25,600
To record depreciation expense:
Working notes:
(a)
(Rs.4,800,000+Rs. 800,000)/50,000,000 = Rs. 0.112 per
board foot. Rs. 0.112×16,000,000 = Rs. 1,792,000
(b)
Rs. 160,000- Rs. 80,000 = Rs. 0.0016 per board foot
50,000,000 Rs. 0.0016× 16,000,000 = Rs. 25,600
Question:36.
On January 1, 2003, Rukmini Company purchased a 10-year sublease on a warehouse for Rs. 300,000. Rukmini will also pay annual rent of Rs. 60,000. Rukmini immediately incurred costs of Rs. 200,000 for improvements to the warehouse, such as lighting fixtures, replacement of a ceiling, heating system, and loading dock. The improvements have an estimated life of 12 years and no residual value.
Required: Prepare the entries to record:
a. The payment for the sublease on a warehouse.
b. The rent payment for the first year.
c. The payment for the improvements.
d. Amortization of the leasehold for the first year.
e. Amortization of the leasehold improvements for the first year.
Solution:
a. Leasehold……………………………………….. 300,000
Cash……................................................. 300,000
To record the purchase of sublease on warehouse
b. Rent Expense……….............................................. 60,000
Cash……………………………………. 60,000
To record the payment of annual rent
c. Leasehold improvements………………………… 200,000
Cash ……………………………………. 200,000
To record payment for leasehold improvements
d. Rent Expense…………………………………….. 30,000
Leasehold ………………………………. 30,000
To record the amortization of leasehold for 2003
e. Rent Expense…………………………………….. 20,000
Leasehold improvements……………….. 20,000
To record the amortization of leasehold improvements for 2003
Question:37.
On January 1, 2002, Pashupati Soap Industry purchased a machine for Rs. 360,000 cash. The machine has an estimated useful life of six years and an estimated salvage value of Rs. 18,000. The straight-line method of depreciation is being used.
Required:
a. Compute the book value of the machine as of July 1,2005.
b. Assume the machine was disposed of on July 1, 2005, Prepare the journal entries to record the disposal of the machine under each of the following independent assumptions:
1. The machine was sold for Rs. 120,000 cash.
2. The machine was sold for Rs. 180,000 cash.
3. The machine and Rs. 24,000 cash were exchanged for a new machine that had a cash price of Rs. 390,000. Use the accounting method rather than the income tax method.
4. The machine was completely destroyed by fire. Cash of Rs. 108,000 is expected to be recovered from the insurance company.
Solution:
a.Pashupati Soap Industry
Schedule to Compute Book Value
July 1, 2005
Acquisition cost ............................................Rs. 360,000
Less accumulated depreciation:
360,000 – 18,000 = Rs. 57,000
6 years
57,000×31/2 = Rs. 199,500 Rs. 199,500 Book Value………………………… Rs. 160,500  | |||
 | |||
b.
1. Cash………………………………………………. 120,000 Accumulated Depreciation – Machinery…………. 199,500
Loss on disposal of Machinery…………………… 40,500
Machinery …………………………………… 360,000
To record the sale of machinery at a loss
2. Cash………………………………………………. 180,000
Accumulated depreciation – Machinery …………. 199,500
Machinery……………………………………. 360,000
Gain from disposal of Machinery……………. 19,500
To record the sale of machinery at a gain
3. Machinery (New)………………………………….. 390,000
Accumulated depreciation – Machinery…………... 199,500
Loss on disposal of Machinery……………………. 10,500
Machinery (old)………………………………. 360,000
Cash…………………………………………… 240,000
To record exchange of machines
4. Receivable from Insurance Company……………... 108,000
Accumulated Depreciation – Machinery…………… 199,500
Loss on Fire………………………………………… 52,500
Machinery……………………………………… 360,000
To record loss of machinery
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Question:38. A-5: (RNS) Comprehensive Debenture Transactions
19X1 Sep. | 1 | Cash | 1,00,000 | |
Debentures Payable | 1,00,000 | |||
Issued 16%, 8-year debentures at par | ||||
Nov. | 1 | Cash | 1,18,218 | |
Discount on Debentures Payable | 31,782 | |||
Debentures Payable | 1,50,000 | |||
Issued 10% 10-year convertible debentures at a discount: Present value of 20 semi-annual interest payments of Rs 7,500 each at 7%: Rs 7,500 x 10.59401 Rs 79,455 Present value of Rs 1,50,000 payable after 20 semi-annual periods at 7%: Rs 1,50,000 x 0.25842 38,763 Present value of the debenture issue 1,18,218 | ||||
Dec. | 31 | Debenture Interest Expense | 5,333 | |
Cash | 5,333 | |||
Paid semi-annual interest on 16% debentures for 4 months | ||||
19X2 Mar. | 31 | Debenture Interest Expense | 10,250.00 | |
Amortization of Discount on Debentures Payable | 646.05 | |||
Accrued Interest Payable | 10,250.00 | |||
Discount on Debentures Payable | 646.05 | |||
To accrue interest of Rs 10,250 as shown below and amortize 5/6 of discount of Rs 775.26 on 10% debentures as shown in the schedule at the end: 10% debentures Rs 1,50,000 x .10 x 5/12 = Rs 6,250 + 16% debentures Rs 1,00,000 x .16 x 3/12 = Rs 4,000 | ||||
Apr. | 30 | Debenture Interest Expense | 1,250.00 | |
Accrued Interest Payable | 6,250.00 | |||
Amortisation of Discount on Debentures Payable | 129.21 | |||
Cash | 7,500.00 | |||
Discount on Debentures Payable | 129.21 | |||
Paid semi-annual interest and amortised 1/6 of discount of Rs 775.26 on 10% debentures | ||||
June | 30 | Debenture Interest Expense | 8,000 | |
Cash | 8,000 | |||
Paid semi-annual interest on 16% debentures | ||||
Oct. | 31 | Debenture Interest Expense | 7,500.00 | |
Amortisation of Discount on Debentures Payable | 829.53 | |||
Cash | 7,500.00 | |||
Discount on Debentures Payable | 829.53 | |||
Paid semi-annual interest and amortised discount on 10% debentures | ||||
Nov. | 30 | Debentures Payable | 1,00,000 | |
Debenture Interest Expense | 6,667 | |||
Cash | 1,04,667 | |||
Gain on Retirement of Debentures | 2,000 | |||
Retired 16% debentures at 98 and paid accrued interest of Rs 6,667 (Rs 1,00,000 x .16 x 5/12 = Rs 6,667) | ||||
19X3 Mar. | 31 | Debenture Interest Expense | 6,250.00 | |
Amortisation of Discount on Debentures Payable | 739.67 | |||
Accrued Interest Payable | 6,250.00 | |||
Discount on Debentures Payable | 739.67 | |||
To accrue interest of Rs 6,250 as shown below and amortise 5/6 of discount of Rs 887.60 on 10% debentures as shown in the schedule at the end: 10% debentures Rs 1,50,000 x .10 x 5/12 = Rs 6,250 | ||||
Apr. | 30 | Debenture Interest Expense | 1,250 | |
Accrued Interest Payable | 6,250 | |||
Amortisation of Discount on Debentures Payable | 147.93 | |||
Cash | 7,500 | |||
Discount on Debentures Payable | 147.93 | |||
Paid semi-annual interest and amortised 1/6 of discount of Rs 887.60 on 10% debentures | ||||
Apr. | 30 | Debentures Payable | 1,50,000 | |
Discount on Debentures Payable | 29,289.62 | |||
Share Capital | 90,000.00 | |||
Share Premium | 30,710.38 | |||
Converted 10% debentures payable into 6,000 equity shares according to terms of conversion |
Debenture Discount Amortisation Schedule(Using Effective Interest rate Method)
A Interest Payment Date | B Interest Expenses Debit (E×0.07) | C Cash Credit (150,000×0.05) | D Discount on Debenture payable Credit (B-C) | E Unamortized Discount on Debenture payable (Previous balance in E-D) | F Carrying Value of Debenture payable (Previous balance in F+D) |
Issue date | 31782.00 | 118,218.00 | |||
1 | 8275.26 | 7,500 | 775.26 | 31,006.74 | 118,993.26 |
2 | 8329.53 | 7,500 | 829.53 | 30,177.21 | 119,822.79 |
3 | 8387.60 | 7,500 | 887.60 | 29,289.62 | 120,710.38 |
4 | 8449.73 | 7,500 | 949.73 | 28,339.89 | 121,660.11 |
5 | 8516.21 | 7,500 | 1,016.21 | 27,323.68 | 122,676.32 |
6 | 8587.34 | 7,500 | 1,087.34 | 26,236.34 | 123,763.66 |
7 | 8663.46 | 7,500 | 1,163.46 | 25,072.88 | 124,927.12 |
8 | 8744.90 | 7,500 | 1,244.90 | 23,827.99 | 126,172.01 |
9 | 8832.04 | 7,500 | 1,332.04 | 22,495.94 | 127,504.06 |
10 | 8925.28 | 7,500 | 1,425.28 | 21,070.66 | 128,929.34 |
11 | 9025.05 | 7,500 | 1,525.05 | 19,545.61 | 130,454.39 |
12 | 9131.81 | 7,500 | 1,631.81 | 17,913.80 | 132,086.20 |
13 | 9246.03 | 7,500 | 1,746.03 | 16,167.77 | 133,832.23 |
14 | 9368.26 | 7,500 | 1,868.26 | 14,299.51 | 135,700.49 |
15 | 9499.03 | 7,500 | 1,999.03 | 12,300.47 | 137,699.53 |
16 | 9638.97 | 7,500 | 2,138.97 | 10,161.51 | 139,838.49 |
17 | 9788.69 | 7,500 | 2,288.69 | 7,872.81 | 142,127.19 |
18 | 9948.90 | 7,500 | 2,448.90 | 5,423.91 | 144,576.09 |
19 | 10120.33 | 7,500 | 2,620.33 | 2,803.58 | 147,196.42 |
20 | 10303.75 | 7,500 | 2,803.75 | -0.17 | 150,000.17 |
Question:39. The following information is available concerning the inventory of Pathak Bros:
Units Unit Cost
Beginning Inventory 2,000 Rs. 100
Purchases:
March 2 3,000 110
June 10 4,000 120
August 15 2,500 130
December 22 1,500 150
During the year, Pathak Bros. sold 10,000 units. Its uses a periodic inventory system.
Required:
a. Calculate ending inventory and cost of goods sold for each the following three methods:
i. Weighted Average
ii. FIFO
iii. LIFO
b. Assume an estimated tax rate of 30%. How much more or less will Pathak pay in taxes by using FIFO instead of LIFO?
Question:40. On July 3, 2003, an explosion destroyed a fireworks supply company. A small amount of inventory valued at Rs. 4,500 was saved. An estimate of amount of inventory lost is needed for insurance purposes. The following information is available:
Inventory, January 1 Rs. 14,200
Purchases, January – June Rs. 77,000
Sales, January – June Rs. 93,500
The normal gross profit ratio is 70%. The insurance company will pay the supply company rs. 50,000
Required:
a. Using the gross profit method, estimate the amount of inventory lost in the explosion.
b. Prepare the journal entry to record the inventory loss and insurance reimbursement.
Question:41. The following amounts are available from the 2002 annual report of Skylark Company(amounts are in million of Rs.)
Cost of sales, buying and occupancy Rs. 27,257
Merchandise inventories, January 1, 2003 ( at the end of 2002) Rs. 4,816
Merchandise inventories, January 1, 2002 (at the end of 2001)
Required:
a. Compute Skylark’s inventory turnover ratio for 2002
b. What is the average length of time it takes to sell item of inventory? Explain your answer.
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