Reference no: EM13343435

Question 1
 
This question has 2 parts and you are required to answer both parts.
 
Part A
 
You have just received the 30 April 2011 bank statement for Swat Pte Ltd. To prepare the bank reconciliation, you gathered the following information:
 
-  The company's general ledger cash account showed a balance of $25,216 on 30 April.
 
-  The April bank statement showed a balance of $20,242.
 
-  The April bank statement showed a NSF (Not Sufficient Funds) cheque  in the amount of $888 from customer David Ong.
 
-  The April bank statement showed interest revenue of $24.
 
-  The April bank statement showed service charge of $10.
 
-  The company has just deposited $4,000 in the bank. This will appear only in the May bank statement.
 
-  The company has recorded a  cheque  incorrectly. The April bank statement showed a  cheque  payment of $980 to pay an account payable. However, the company has recorded this transaction as:

Dr  Accounts Payable   $880

Cr       Cash               $880
 
Required:
 
a)  Prepare the bank reconciliation for Swat Pte Ltd.

 
b)  Prepare the required journal entries for the April transactions (Explanations are  not required).

 
Part B
 
The following situations involve accounting assumptions and principles:  
 
i.  Swat Pte Ltd recently bought six wastepaper baskets costing $10 each. This was recorded as an expense notwithstanding that the wastepaper baskets are expected to be used for five years.
 
ii.  At the start of the year, Swat Pte Ltd bought a machine for $10,000. To better reflect  the  current market conditions, the company revised the accounting records of the machine from $10,000 to its current market value of $12,000. 

For each of the above situations,  indicate whether  you agree or disagree with the accounting treatment. If agree, explain which assumption or principle supports the accounting treatment. If disagree, explain which assumption or principle is violated.
 
 
Question 2
 
Nidley Company purchased a machine on 1 January 2007. The following expenditures were associated with the purchase:
                                     $
List price                      21,000
Delivery charges             2,500
Installation of machine     1,500
 
The machine was estimated to have a five-year useful life and a salvage value of $5,000. 
 
On 1 January 2009, the machine was overhauled at a cost of $6,000. The overhaul extended its useful life from 5 years to 6 years.

On 1  January 2011, the company traded in this machine and paid $3,000 cash for a newer model. There was no gain or loss on this exchange.
 
The company uses the straight-line method of depreciation.
 
Required:
 
a)  Determine the initial cost of the machine. Explain your answer.

 
b)  Determine the depreciation expense, accumulated depreciation and net book value of the machine for the years 2007, 2008, 2009 and 2010.
 
c)  Prepare journal entries to record the trade-in of the machine.
 
Question 3
 
Sunny Company reports the following inventory data for December 2010:
 
1 December  Inventory on hand  100 units @  $20 each
6 December  Purchases  200 units @  $21 each
12 December  Purchases  300 units @  $22 each
22 December  Sale  530 units   
28 December  Purchases  400 units @  $23 each
 
a)  Using the perpetual inventory system, determine  the cost of goods  sold for December 2010 and cost of inventory on hand at 31 December 2010 under the  following cost flow methods:
 
i)  First-in, first out (FIFO) method
ii)  Last-in, first out (LIFO) method
iii)  Weighted average method
 
b)  Using the above figures, explain the financial effects  of FIFO, LIFO and weighted-average method when inventory unit costs are increasing.
 
Question 4
 
The following is extracted from the financial statements of Action Ltd.
 
During the year 2010, the company:
 
-  sold a machine (cost = $5,000; accumulated depreciation $3,000);
 
-  purchased an equipment;
 
-  did not engage in any share buyback;
 
-  issued new shares; and
 
-  paid cash dividends.
 
Required:
 
(a)  Prepare a statement of cash flows  for Action Ltd for the year ended 31 December 2010 using the indirect method.

 
(b)  Consider the organisation in which you are working in (or one in which you are familiar with).  Do you think a statement of cash flows serves any purpose? Explain why you think so and its purpose if any.