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1. Financial accounting (AS Level)
A section of Accounting, 9706
Listing 10 of 1775 questions
Richard commenced business on 1 May 2011. At the end of the first year of trading an extract from his statement of financial position showed: Non-current assets Cost $ Accumulated Depreciation $ Net book value $ Freehold land and Buildings 100 000 2 000 98 000 Machinery 64 000 16 000 48 000 Motor vehicle 12 000 3 600 8 400 Richard has a policy to depreciate non-current assets as follows: • Buildings at 2% per annum on cost. • Machinery at 25% per annum on cost. • Motor vehicles at 30% per annum using the reducing balance method. • Depreciation is charged for each month of ownership. On 1 August 2012 additional machinery, costing $18 000, was purchased. On 1 January 2013 a new motor vehicle costing $24 000 was purchased. On the same date the old motor vehicle was traded in. Richard received an allowance of $2 600 against the cost of the new vehicle. The vehicle disposed had originally cost $12 000 and was purchased on 1 May 2011. All payments and receipts for purchases and disposals were in cash. REQUIRED Prepare the following ledger accounts for the year ended 30 April 2013. Dates are not required. Motor vehicles (at cost) Provision for depreciation of motor vehicles Disposal of motor vehicles Calculate the depreciation charge for the year ended 30 April 2013 to be shown in the income statement, clearly identifying the amount charged for each category of asset. Additional information Richard is considering the admission of a partner and feels that he should be rewarded for his efforts in starting and developing the business. His accountant has advised him that there is an asset called goodwill. REQUIRED Explain the meaning of the term goodwill and suggest two reasons how it may arise. Explain how goodwill should be treated in the books of partnership.
9706_s14_qp_21
THEORY
2014
Paper 2, Variant 1
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Questions Discovered
1775