Accounting Business Reporting for Decision Making

CHAPTER 6 Statement of profit or loss and statement of changes in equity 253

d. Received cash for goods sold

e. Owner contributed $20 000 to fund a new product line

f. Received a grant from a government body to assist with an export program.

6.17  LO6

Consider each of the following transactions and examine whether they satisfy the expense

definition criteria under the accrual method of accounting:

a. Paid wages owing from the previous reporting period

b. Owner withdrew money for a holiday

c. Money owed to Telstra for phone charges this reporting period

d. A property asset is impaired

e. Paid a supplier for goods that had been purchased on credit

f. Purchased a computer system to computerise the accounting records.

6.18  LO3

a. Classify the following as either accounting policy choices or accounting estimations.

i. Impairment of assets

ii. Employee benefits (long service leave)

iii. FIFO method of costing inventory

iv. Depreciation method of motor vehicles used for business

v. Useful life of motor vehicles used for business

b. Explain the factors that would influence an entity’s decision as to the choice of depreciation method.

6.19  LO4

Solve the missing items for each independent case. The cost of sales is 60 per cent of sales revenue

for each case.

Sales

revenue

Cost of

sales

Other

expenses Profit

Total

assets

Total

liabilities

Share

capital

Retained

earnings

180 000 a. b. 40 000 c. 589 000 250 000 25 000

d. 102 000 e. 38 000 621 000 f. 225 000 201 000

204 500 g. 115 000 h. 180 000 75 000 80 000 i.

875 000 j. k. 95 000 645 000 450 000 l. 50 000

m. 66 000 32 000 n. o. 186 000 400 000 29 000

6.20  LO3, 4

Coconut Plantations Pty Ltd purchased machinery for its manufacturing process on 1 March 2018.

The machinery cost $600 000. Coconut Plantations estimates that the machinery has a useful life

of five years, and will have a $50 000 residual value. Using straight-line depreciation, estimate the

depreciation expense to be recorded in the statement of profit or loss for the year in which the machine

was purchased and the subsequent year, assuming Coconut Plantations’ reporting period ends on

31 December.

6.21  LO3, 4

Using the information relating to Coconut Plantations Pty Ltd in 6.20, recalculate the depreciation

expense to be recorded in the statement of profit or loss for the year in which the machine

was purchased and the subsequent year using the diminishing balance method and the units of

production method. In recalculating the depreciation expense, use the following assumptions:

Diminishing balance – The machinery is depreciated using a 331/3 per cent depreciation rate.

Units of production – The machinery is expected to produce 200 000 units over its useful life.

In the period of March to December in year 1, 20 000 units are produced. In year 2, 50 000 units

are produced.

6.22  LO2

You have just completed the statement of profit or loss for the reporting period. The CEO (who has

no accounting background) is reviewing the statement you have prepared, and asks you to explain