1.3. Accounting for non-current assets
A subsection of Accounting, 9706, through 1. Financial accounting (AS Level)
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Khin is a retailer. The following balances have been extracted from his books of account at 31 January 2022. $ Advertising 4 900 Carriage inwards 2 140 Carriage outwards 1 730 Furniture and equipment at cost 18 900 Furniture and equipment provision for depreciation at 1 February 2021 7 300 General expenses 13 450 Inventory at 1 February 2021 12 310 Irrecoverable debts Loss on disposal of delivery vehicle 1 350 Premises at cost 360 000 Premises provision for depreciation at 1 February 2021 21 600 Provision for doubtful debts at 1 February 2021 Purchases 118 220 Rent receivable 7 000 Revenue 197 300 Trade receivables 15 580 Wages and salaries 34 640 The following information is also available at 31 January 2022. Closing inventory was valued at $13 480. No record had been made of goods taken for own use by Khin, $910. An irrecoverable debt of $380 is to be written off. The provision for doubtful debts is to be maintained at 5% of trade receivables. Advertising includes a payment of $3250 for a campaign which will last from 1 December 2021 to 30 April 2022. Rent receivable is $500 per month. Wages, $1440, are outstanding. Khin sold his business’s only delivery vehicle in January 2022 resulting in the loss of $1350 shown in the balances at 31 January 2022. The business’s depreciation policy is as follows: i Premises to be depreciated by 2% per annum using the straight-line method. ii Furniture and equipment to be depreciated by 15% using the reducing balance method. REQUIRED Prepare the income statement for the year ended 31 January 2022. Use the space provided on page 4 for your workings. Khin Income statement for the year ended 31 January 2022 Workings: Additional information There was no opening balance on the rent receivable account at 1 February 2021. REQUIRED Prepare the rent receivable account for the year ended 31 January 2022. Rent receivable account $ $ Prepare a journal entry to record the adjustment to the provision for doubtful debts account at 31 January 2022. A narrative is not required. Journal Dr $ Cr $ Additional information Khin intends to purchase a new delivery vehicle. He is not sure whether the delivery vehicle should be depreciated using the straight-line method or reducing balance method of depreciation. REQUIRED Explain the reason for recording depreciation in a business’s income statement. State one benefit of using each of the following methods of depreciation. Straight-line Reducing balance Additional information Khin is concerned about a decline in the business’s profitability. He is considering two options. Option 1: decrease the amount spent on advertising whilst also reducing the selling price by a small amount. Option 2: purchase goods from cheaper suppliers. REQUIRED Advise Khin which option he should choose. Justify your advice by discussing both options.
9706_s22_qp_21
THEORY
2022
Paper 2, Variant 1
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Questions Discovered
480