Reference no: EM133127377
Question - Nelly owns a business which has a financial year end of 31 December 2021. The table below includes the account balances of the business.
|
Balance sheet accounts
|
Dr
|
Cr
|
|
£
|
£
|
|
Property and equipment at cost (at 31/12/2020)
|
275,000
|
|
|
Property and equipment - accumulated depreciation (at 31/12/2020)
|
|
55,000
|
|
Motor vehicles at cost (at 31/12/2020)
|
30,000
|
|
|
Motor vehicles - accumulated depreciation (at 31/12/2020)
|
|
10,800
|
|
Receivables (at 31/12/2021)
|
412,800
|
|
|
Allowance for receivables (at 31/12/2020)
|
|
24,000
|
The following information is relevant:
1. Depreciation on property and equipment is provided at 20% per annum on the straight-line basis, assuming no residual value.
2. Motor vehicles are depreciated at 20% per annum using the reducing balance method.
3. There were no additions and disposals of non-current assets during the year.
4. Nelly estimates that £43,800 due from customers will be irrecoverable and must be written off.
5. The allowance for receivables is to be set at 8% of net receivables at 31 December 2021.
Required -
a. Prepare the non-current assets note using the layout as shown in the table below. Show your workings.
b. Calculate the increase or decrease in the allowance for irrecoverable receivables for the year ending 31 December 2021.
c. State the figure that will be shown on the face of the balance sheet for receivables at the year-end 31 December 2021.
d. Give an argument for, and an argument against, Nelly's depreciation policy in respect of motor vehicles.
e. i. Explain the process that Nelly may have followed to decide on the policy that the allowance for receivables should be set at 8% of net receivables at the year end.
ii. State whether you think that 8% of net receivables is an appropriate policy for Nelly's business and indicate why you think it is appropriate or not.