Reference no: EM131595125

Q1. On 1 July 2011 Sprintfast Couriers, which has a year-end of 30 June, purchased a delivery truck for use in its courier operations at a cost of $65 000. At the end of the truck's useful life it is expected to have a residual value of $5000. During its six-year useful life, Sprintfast Couriers Limited expected the truck to be driven 246 000 kilometres

REQUIRED -

Calculate the annual depreciation charge for each of the six years of the truck's life using the following methods:

(a) the straight-line method

(b) the sum-of-digits method

(c) the declining-balance method

(d) the units-of-production method using kilometres as the basis of use and assuming the following usage:

Year	Kilometres
2012	28 000
2013	34 000
2014	42 000
2015	55 000
2016	68 000
2017	19 000
	246 000

Q2. Star City Limited commences construction of a multi-purpose water park on 1 July 2015 for Pretoria Limited. Star City Limited signs a fixed-price contract for total revenues of $50 million. The project is expected to be completed by the end of 2018 and Pretoria Limited controls the asset throughout the period of construction. The expected cost as at the commencement of construction is $38 million. The estimated costs of a construction project might change throughout the project-in this example, they do change. The following data relates to the project (the financial years end on 30 June):

	2016 ($m)	2017 ($m)	2018($m)
Costs for the year	10	18	12
Costs incurred to date	10	28	40
Estimated costs to complete	28	12	-
Progress billings during the year	12	20	18
Cash collected during the year	11	19	20

Required

(a) Using the above data, compute the gross profit to be recognised for each of the three years, assuming that the outcome of the contract can be reliably estimated.  

 

(b) Prepare the journal entries for the 2016 financial year using the percentage-of-completion method. 

 

(c) Prepare the journal entries for the 2016 financial year, assuming the stage of completion cannot be reliably assessed. 

 

Q3. Innovator Ltd incurred expenditure researching and developing a cure for a common disease found in turnips. At the end of 2013 management determined that the research and development project was unlikely to succeed because trials of the prototype had been unsuccessful. During 2014 a breakthrough in agricultural science improved chances of the product succeeding and development resumed. The project was completed in 2014. At the end of 2014 costs incurred on the project were expected to be recoverable. Innovator expects that 10 per cent of the project revenue will be received in 2015, 20 per cent in 2016, 30 per cent in 2017, 30 per cent in 2018 and 10 per cent in 2019. After five years the product will be at the end of its useful life because the disease found in turnips will have been eradicated. Costs incurred were as follows:

	Research ($000)	Development ($000)
2013	40 000	10 000
2014	12 000	60 000

REQUIRED

(a) How much research expenditure and development expenditure should be recognized as an expense in 2013?

(b) How much research and development expenditure should be recognized as an expense in 2014?

(c) State how much expenditure should be carried forward (deferred) and reported in the statement of financial position at the end of 2013 and 2014.

(d) Prepare journal entries for the amortization of deferred costs in 2015 and 2016, assuming that actual revenues are as expected. State the amount of deferred expenditure carried forward in the statement of financial position in relation to the deferred costs.

(e) Assume that after charging amortization based on sales revenue at the end of 2014 the discounted net cash flows expected to be generated from the deferred expenditure were estimated as $15 000. Prepare any journal entries required to account for this information.