Unit 4 Revision Q's

[ben4386]

Hey guys, the accounting forum seems a bit dead, costargh started a similar thing mid year so I thought we should try and rejuvenate it.

Ill kick things off

If you purchase 1000 chairs as stock each for $35 and delivery for all of them amounts to $50 would you treat this as a product or period cost and why.

A business makes a profit on disposal of a NCA, suggest why and how this could have occured

The Return on Assets of a business was 20% in 2007 and 15% in 2008, however asset turnover increased from 4 times to 5 times, suggest how and why this has occured.

[Noblesse]

I spose I'll have a go...

a) Period cost, even though it can be logically attributed to each item, the cost is far too insignificant and therefore can be written off as a whole because of the Relevance charactersitic.

b) a profit on the disposal of a non-current asset occurs when the carrying value of an asset is less than the proceeds from its disposal and therefore it had been over-depreciated, as a result of either the original estimates did not anticipate that the asset would be in good condition or the original estimates did not anticipate that the asset would be in high demand.

c) Umm not too sure on this question, decrease in the amount of assets while sales increased or remained constant (or decreased by a lower margin) or a increase in expenses (decrease in expense control)? need to focus on profitability and liquidity...

[costargh]

with respect to a)
where do you draw the line? what is considered too insignificant to add as a product cost?
I was at an accounting lecture today by Anthony Simmons and he said something like it can technically be both even if its just for a sticker worth 50c. I kinda got confused with what he was saying, not sure which one he thought was the preferred option. Are there examples of these from past papers/assessment reports which we can check on?

[ben4386]

with respect to a)
where do you draw the line?

I was told 10% but its really a subjective thing, the delivery cost per unit is 5 cents compared with a 35 dollar suppliers price, its not like if you want a 100% mark up your going to make the selling price $70.10, you would most likely leave it at $35 cost and $70 sale price

I spose I'll have a go...

nice answer for a and b , id mention with the over depreciation as well that it is due with either the scrap value being over stated, or the useful life being overstated  resulting in a higher depreciation expense per annum.

c) Umm not too sure on this question, decrease in the amount of assets while sales increased or remained constant (or decreased by a lower margin) or a increase in expenses (decrease in expense control)? need to focus on profitability and liquidity...

I would say that the firms ability to earn revenue has been greater with sales revenue rising at a faster rate than total assets. The decrease in ROA shows that firms ability to earn a profit has reduced. Since profit is dependent on the ability to both earn revenue and control expenses and revenue earned has increased, the firms ability to control its expenses has significantly worsened. This could be both a worsening  in control in the cost price of stock and in the control of other operating expenses like rent and wages

[costargh]

I've sorta made this question up/ modified it to cover a whole sort of questions. This question refers to product costing but with two separate source documents, which makes it a bit more tricky.  Have a go.

1.
On 10 November 2009, Mike's Garden supplies purchased 10 shovels for $15 each (Inv. 32). Packaging the shovels to ready them for sale cost $40 (Chq. 101)

a) Calculate the cost of one shovel.
b) Post the information to the relevant journals
c) Show how this would be recorded in the stock card. (Balance as at Nov 1 was 3 shovels @ $14 each)
d) Show the stock control ledger as at 30 November presuming no other transactions took place in the month. Stock Control balance was $9000 as at Nov 1.

[ben4386]

a) 1 shovel = 15 + 4= $19

b) i dont know how to create journals and ledgers but, the u would have in the purchases journal stock 150, gst 15, total creditors 165

in the CPJ u would have the cross ref as stock control for $40 and $4 gst

c) stock card, 2 diff entries in the in column, 1 saying 10 15 150, and 1 saying
10 4 40, and then in the balance 3 14 42, and 10 19 190

d) Stock ledger

1 Nov Balance 9000                       31 Nov Balance 9190
        Creditors Control 150
         Bank                40

i hope this is right...

[costargh]

I don't actually know the answers cause I made it up but yes I would do what u have done exactly the same.

for c) in Cambridge accounting text book it has two separate entries like u have done.
however u shood also be able to do it as one by having in Details "Inv 32/ Chq 101" thus combining the in column.
It isn't done like this in my text book but at Anthony Simmons lecture that i went to, he did an example that i based this question on in that way, by combining the two. Either way, i presume would be correct.

Everything else is exactly the same way i wood do it and i dont think there is much area for dispute in any of these.