COURSE NAME: PRINCIPLES OF ACCOUNTING I
COURSE CODE: ACT 291
Name: Nabilah Farhanah Binti Mohd Azman
Student ID: SCKD-1800491
Final Assessment Accounting 1
Question 1
(a) Prepare Statement of Profit or Loss for the year ended 30 April 2020.
CINDY Enterprise
Statement of Profit or Loss for the year ended 30 April 2020
$
$
Sales
$
229,245
Sales return
5,486
Net sales
223,759
Less: Cost of Goods Sold
Opening inventory
Purchases
10,940
100,170
Purchases return
3,356
Net purchases
96,814
Carriage inwards
96,814
107,754
Closing inventory
15,000
92,754
131,005
Gross profit
Add: Other income
Discount received
Interest received
1,062
840
1,902
132,907
Less: Expenses
Carriage outwards
Wages and salaries
3,210
General office expenses
35,940
Rent
1,579
18,000
Discount allowed
2,880
61,609
Net profit
71,298
(b) Prepare Statement of Financial Position as at 30 April 2020.
CINDY Enterprise
Statement of Financial Position as at 30 April 2020
Non-current assets
Cost
Accumulated
Depreciation
Fixtures and Fittings
40,900
Motor Vehicle
55,600
Net Book
Value
96,500
Current assets
Closing inventory
15,000
Cash
1,140
Trade receivables
32,400
48,540
145,040
Current liability
Trade Payables
Accruals
Bank overdraft
21,982
260
2,490
24,732
Owner’s equity
Capital
Net profit
70,660
71,298
Drawings
141,958
21,650
120,308
145,040
Question 2
(i)
FIFO
Purchases
Date
Quantity
Price
Cost of Goods Sold
Total
Quantity
Price
Balance
total
Quantity
1-Jan
3-Jan
200
1.5
300
150
10-Jan
21-Jan
300
1.7
510
1
150
Price
Total
200
1
200
200
1
200
200
1.5
300
50
1
50
200
1.5
300
50
1
50
200
1.8
360
25-Jan
30-Jan
300
1.7
510
50
1
50
200
1.5
300
300
1.7
510
200
1.8
360
1
50
200
1.5
300
150
1.7
255
150
1.7
255
200
1.8
360
615
LIFO
Quantity
Price
Cost of Goods Sold
Total
Quantity
Price
Balance
total
01-Jan
03-Jan
300
755
Purchases
Date
1.5
50
1170
(ii)
200
200
1.5
300
150
10-Jan
300
1.7
510
1.5
225
Quantity
Price
Total
200
1
200
200
1
200
200
1.5
300
200
1
200
50
1.5
75
200
1
200
21-Jan
200
1.8
360
25-Jan
1.5
75
300
1.7
510
200
1
200
50
1.5
75
300
1.7
510
200
1.8
360
200
1.8
360
200
1
200
200
1.7
340
50
1.5
75
100
1.7
170
30-Jan
Total
50
1170
925
445
(iii) Weighted Average Method
Purchases
Date
Quantity
Price
Cost of Goods Sold
Total
Quantity
Price
Balance
total
01-Jan
03-Jan
200
1.5
300
10-Jan
150
1.25
187.5
Quantity
Price
Total
200
1
200
400
1.25
500
250
1.25
312.5
21-Jan
300
1.7
510
550
1.495
822.5
25-Jan
200
1.8
360
750
1.577
1182.5
350
1.577
551.95
30-Jan
Total
400
1.577
1170
(b) Calculate the trading profit if the sales per item is RM3.00.
(i) FIFO
630.8
818.3
551.95
RM
Sales (615* RM3.00)
RM
1845
Less: Cost of Goods sold
Opening inventory
Purchases
200
1170
1370
Closing inventory
- 615
755
Gross Profit
1090
(ii) LIFO
RM
Sales (445* RM3.00)
RM
1335
Less: Cost of Goods sold
Opening inventory
Purchases
200
1170
1370
Closing inventory
- 445
925
Gross Profit
410
(iii) WAC
RM
Sales (551.95* RM3.00)
RM
1655.85
Less: Cost of Goods sold
Opening inventory
Purchases
200
1170
1370
Closing inventory
-551.95
818.05
Gross Profit
837.8
(c) Discuss the advantages and disadvantages of using different bases of inventory
valuation.
Inventory valuation is the monetary amount that is associated with the items or goods in
the inventory at the end of the accounting period. The valuation is based on the costs
incurred to get the inventory and get it ready for sale. It is used for businesses to
evaluate the Cost of Goods Sold (COGS) and the profit that the business makes. There
are three methods that are widely uses which are FIFO (First-in, First-out), LIFO
(Last-in, First-out) and WAC (Weighted Average Cost) in which every method has its
own advantages and disadvantages, depending on certain circumstances such as the
size of the company, type of inventory it stocks and the tax situation of the company.
First of all, there are few advantages of using FIFO method in which it is easy to apply,
no manipulation of income is possible and more realistic assumption as in the assumed
costs of goods corresponds with the normal physical flow of goods (Garcia, 2020). To
which all these advantages benefit the business especially when FIFO works in a way
that oldest unit costs will be removed first since it acts as the first cost to the company.
However, on the disadvantage side, FIFO creates a lower cost of goods sold when
inventory prices are rising. This is not beneficial to the company especially when the
economy is experiencing inflation in which it means lesser tax deductions for the
company.
On the other hand, LIFO is a method that gives bigger tax deduction for the company in
which bigger companies prefer to use LIFO for its tax advantages especially during
inflation period. This is because, LIFO inflates the costs of good sold and gives higher
tax deduction for the company. However, the application of LIFO is not realistic. This
is because every stock has its own expiry dates which means inventory can spoil or
become obsolete. Also, in the realistic way of viewing how business works, companies
generally would try to sell their oldest inventory first, not their newest stocks. To which
this method is not allowed under the International Financial Reporting Standards and if
the business decides to move abroad, it can create reporting problem (Shubir, 2013).
The last method which is WAC takes the middle-of-the-road approach in which the
business can manipulate income under this approach by buying or failing to buy goods
near year-end. Realistically, when a company uses this method and prices increased, its
cost of goods sold is less than that obtained under LIFO, but would be higher than that
is earned under FIFO. However, this approach reduces the effects of buying or not
buying (Garcia, 2020).
Question 3
(a) Distinguish between tangible assets and intangible assets.
Tangible assets are physical assets that can be touched and felt such as furniture,
machines, automobiles and physical inventory. These assets are used in the business
primarily to produce products or services. Since tangible assets are much often
purchased for these reasons, these assets are much more easily valued than intangible
assets and are accounted as either long term or current assets, depending on the
estimated life shelf of the assets. However, this could also mean they depreciate in
value over time (Madhani, 2015).
On the other hand, different from tangible assets, intangible assets are assets that do not
have a physical character, but are essential and crucial for the business. These include
goodwill, copyrights and trademarks. Another aspect that makes intangible assets
different from tangible assets is that the assets have the ability to increase in value
instead of depreciate. Also, based on the type of the intangible assets, it can either have
a definite or indefinite life. For instance, assets such as patents have a definite life since
it comes with an expiration date. Meanwhile, brand names have an indefinite life
because it can last for the entire period of the company (Durst & Gueldenberg, 2013).
(b) Discuss the causes for non-current asset to depreciate.
Depreciation is a term that is used to explain the reduction in the carrying amount of an
asset. Technically, when there is a damage or an impairment to an asset it is considered
to depreciate in value. There are many reasons to why non-current asset depreciate.
The first one is technological advancement (Fineman, 2000). When there is a new
technology in the market, the asset that uses old technology will automatically reduce
in value since it is considered old and is left behind in terms of the advancement of the
technology to produce similar products or services. For instance, when the technology
of pen drive was introduced to the market and more people started using it to store
documents and files, companies that produce hard disks were seen to have lower sales
and it led to the shut down of their manufacturing companies such as Western Digital in
Malaysia (Jayne, 2018).
Other than that, physical loss to the asset is one of the factors that causes non-current
assets to depreciate in value. This is because, any damage or change in terms of the
physical features of the asset will most likely result in the efficiency, effectiveness or
productivity of the item. To which it will result in the decrease of value of the asset as
the same item does not produce good results anymore as it used to (Fineman, 2000).
Lastly is expiry to use has expired. A non-current asset could actually be a right for
users to use the asset for a certain period of time and the moment the right to use has
expired, its life span ends. Thus, it results in depreciation.
(c) Calculate the depreciation charges for each machine from 2017 to 31 December
2019.
Machine A
2017
Machine B
Machine C
Total
0
0
500
10%*5000*(12/12)
500
2018
2019
10%*(5000-500)*(12/12)
10%*4500*(4/12)
450
150
0
10%*(5000–950)*(12/12)
10%*(4500-150)*(12/12)
10%*2850*(8/12)
405
435
190
References
Durst, S., & Goldenberg, S. (2013). The Meaning of Intangible Assets: New Insights
Into External Company Succession in SMEs. Retrieved July 10, 2020 from
file:///C:/Users/VS%20solutions/Downloads/ejkm-volume7-issue4-article195.pdf
Fineman, A. (2000). Depreciation of Non-Current Assets. Retrieved July 10, 2020
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play=https://www.tved.net.au/PublicPapers/March_1998,_Corporate_Education_
Channel,_Depreciation_of_Non_Current_Assets.html
Garcia, M. (2020). Advantages and Disadvantages of Valuing and Costing Inventory.
Retrieved
July
10,
2020
from
https://smallbusiness.chron.com/advanatages-disadvantages-valuing-costing-inve
ntory-81322.html
Jayne, T. (2018). Famous PJ Landmark Western Digital Factory is Closing Down by
The
End
of
2019.
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July
10,
2020
from
https://says.com/my/news/the-famous-western-digital-landmark-in-petaling-jaya-i
s-going-to-close-down-in-2019
Madhani, P.M. (2015). A Study on The Corporate Governance and Disclosure
Practices of Tangible Assets and Intangible Assets - Dominated Firms and Their
Relationship.
Retrieved
July
10,
2020
from
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2634879
Shubir, S. (2013). Methods of Inventory Valuation Application and Limitation.
Retrieved
July
10,
2020
from
http://site.iugaza.edu.ps/salah2r/files/2011/06/Methods-Of-Inventory-Valuation.p
df