ACC202 FULL EXAM Notes from su1 to su6 PDF

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Journal entries Date Particulars Debit ($) Credit ($)Depreciation journal entries (a) Office equipment, which had been purchased on 1 December 2019, is expected to last 10 years. (accounting for 29 feb 2020)Depreciation expenses – office equipment DR 125 Accumulated depreciation – office equipment 5...

Description

Journal entries Date Particulars

Debit ($)

Credit ($)

Depreciation journal entries Office equipment, which had been purchased on 1 December 2019, is expected to last (a) 10 years. (accounting for 29 feb 2020) Depreciation expenses – office equipment Accumulated depreciation – office equipment 5000/10 x 3/12 (3 months – dec, jan and feb) Depreciation on office equipment

DR 125 CR 125

Important: date of declaration (jan 19) and Date of payment ( mar 19) Statement of Financial position Pte ltd Statement of Financial position as at ____ Asset

$

Total Asset Liability

$

Total Liability Shareholder’s equity

$

Total shareholder’s equity

Retained earnings (net profit) = TA – TL Stockholders Equity = Assets – Liabilities. Income statement

FIFO / WAC Date Goods purchased Qty. Unit Total Cost cost

FIFO

Cost of Goods Sold Qty. Unit Total Cost Cost

Inventory Balance Qty. Unit Total Cost Cost

Weighted Average Cost

Unit Cost = Quantity in + Quantity balance / cost in + cost balance

Financial Statement effects on inventory error

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No change in ending inventory of 2019.

Cash equivalents - short-term, highly liquid investment assets that are readily convertible into cash and subject to insignificant risk of changes in value (could change in value over time etc machine) Accounts Receivable – Among due from another party (unpaid service)

Notes Receivable are promissory note i.e. written promise to pay a specified amount of money, usually with interest Other Receivables are receivables not related to goods or services - not part of their sales or what they normally will receive (not a normal sales) - example: rental deposit to landlord

Writing off bad debts - when suspected uncollectable (just a estimate, not confirmed) Dr Bad debt expenses Cr allowance for doubtful debts

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^ when its just an estimate, it will be DR bad debts expenses. when confirm can’t be collected

Machinery – what directly attributes to the cost of machine - labour expense resulting from the construction or acquisition of an asset, - direct materials used, - systematic allocation of variable and fixed production overheads, - delivery costs, - site inspection and preparation, - installation, - costs of testing whether the asset is functioning properly, - professional fees (e.g. legal fees, stamp duty). Cost includes all normal, reasonable, and necessary expenditures to obtain the asset and get it ready for use. Acquisition cost also includes the repair and reconditioning costs for used or damaged assets as longs as the item was not damaged after purchase. Cost that are not included: - some costs incurred before the asset is acquired or constructed, - warranties (guarantees) that are in substance a distinct service (see more discussion on this topic), - setting up a temporary location, - abnormal amounts of wasted material, labour, or other resources, - advertising and promotion, - general administrative expenses, - initial operating losses, - trainings, - setting up a temporary location for the time of development of existing location, - salaries and wages of employees that remain idle due to relocation or development of existing PP&E, - termination benefits paid to employees as a result of acquisition of PP&E that replaced their work Depreciation Accounting period

Annua l Year

Beginning carrying amount

Depreciation Expenses ($)

Depreciatio n rate

Accumulated Depreciation ($)

Depreciation Expenses ($)

Net Book Value ($)

Accumulated Depreciation ($)

Net Book Value ($)

Straight Line Method

Carrying amount = total cost (10k) – accumulated depreciation ** 20% = 1,800/10000 (amount after residue) x 100 = 20%

Double Declining Balance Method Double-declining balance rate = 2 X Straight-line rate 20% x 2 = 40%

Carrying amount can never go below residual, hence the 5th year (last year) will be what is left that can be minus off = (1296 – 1000) ** for double decline – starting amount is cost of machine (don’t minus residual value) Carrying amount = opening carrying amount – depreciation expenses Transaction entries of sale on equipment (activity 3 question 4)

 

If breakeven – no need record gain on sale of equipment If made a loss (sold lower than carrying amount) – loss on sale of equipment (DR – expenses)

Liabilities a probable future payment of assets or services that a company is presently obligated to make as a result of past transactions or events. - Not expected to be paid within one year or the company’s operating cycle, whichever is longer. • Eg: Long-term loan Current liabilities - Expected to be paid within one year or the company’s operating cycle, whichever is longer. • Eg: AP, expense accrual, unearned revenue Unearned revenue – a liability CR + , DR -

Estimated Liabilities - An estimated liability is a known obligation of an uncertain amount, but one that can be reliably estimated. Example – warranty liabilities (follow up repair on products sold to customer)

^reduce (debit) the liability and Credit to inventory Type of Share Capital Original Share o rights to receive dividend if any o vote at shareholders’ meetings o purchase additional shares o share equally in any assets remaining after creditors are paid in a liquidation Preference Share A separate class of shares, typically having priority over ordinary shares in... ◦ Dividend distributions ◦ Distribution of assets in case of liquidation • Usually has a stated dividend rate • Normally has no voting rights • Do have rights to purchase add. Shares

Treasury Shares Treasury shares are a company’s own shares that have been acquired. Corporations might acquire its own shares to: 1. Use their shares to buy other companies. 2. Avoid a hostile takeover. 3. Reissue to employees as compensation. 4. Support the market price.

Shareholders receive a return on their investment in two ways: 1. through increases in the market value of the shares and 2. through cash dividends. To pay a cash dividend, the corporation must have: - A sufficient balance in retained earnings; and - The cash necessary to pay the dividend. To record cash dividends paid to shareholders:

Important: date of declaration (jan 19) and Date of payment ( mar 19)

Statement of Cash Flows (Indirect Method) Operating activities (core operations of company – sales, goods and services) - are the principal revenue producing activities other activities other than investing and financing - Examples: receipts from sales/services provided; payments to suppliers for goods/expenses. - Movement in short term liabilities and current / fix assets (not expenses) - Movement in receivable: increase = not collecting back dept - Movement in payables: decrease = not paying back = more cash flow.

Cash flow statement for operating activities only: - Depreciation is added back to cash flow because depreciation expense is a non cash item, hence it does not actually decrease the profit (as base on P&L)

Investing activities (long term assets) - acquisition and disposal of non-current assets - Examples: payments/receipts for/from Property, Plant and Equipment/investments. - Short term assets won’t be here. Will be an operating (stationary) Financing activities - activities that result in changes in equity and borrowings - Examples: receipts from share issues/loan or redemption of shares/loan

Horizontal Analysis: activity 4 question 8 Comparative Statement

Trend Analysis - used to reveal patterns in data covering successive periods.

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Analysis period amount = the net profit of the year that you want to analysis Base period amount = starting year of income statement

Vertical Analysis / Common Size statements

Base amount = can be selected item (from statements such at net sales/ TR ) that is needed to analyze – total asset or revenues Analysis amount – can be cost of good sold amount Cost Classification 1) By behavior - Total fixed costs – do not change when activity changes. - Total variable costs - change in proportion to activity changes. - Mixed costs - are combinations of fixed and variable costs 2) By traceability Direct costs - Costs traceable to a single cost object. - Examples: material and labor cost for a product. Indirect costs - Costs that cannot be traced to a single cost object. - Example: A maintenance expenditure benefiting two or more departments. 3) By Function a) Product cost: Direct Labor, Direct Material or Manufacturing Overhead - Direct material (Prime cost): costs are the expenditures for direct materials that are separately and readily traced through the manufacturing process to finished goods. Example: Steel used in the frame of a mountain bike. - Direct labor (Conversion Cost): costs are the wages and salaries for direct labor that are separately and readily traced through the manufacturing process to finished goods. Example: Wages paid to a mountain bike assembly worker for time he spends in assembly the bikes. - Manufacturing overhead (Conversion Cost): consists of all manufacturing costs that are not direct materials or direct labor and the costs cannot be separately or readily traced to finished goods. Examples: - depreciation, rent and property taxes on the manufacturing facilities - depreciation on the manufacturing equipment - managers and supervisors in the manufacturing facilities - repairs and maintenance employees in the manufacturing facilities - electricity and gas used in the manufacturing facilities

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indirect factory supplies,

b) Period cost: expenses not attached to the product c) Selling cost: incurred to obtain orders and to deliver finished goods to customers. d) Administrative costs are non-manufacturing costs of staff support and administrative functions. - Note: Expenses that are outside of the manufacturing facilities, such as selling, general and administrative expenses, are not product costs and are not inventoriable.

Operating cost = total revenue – direct cost – indirect cost Indirect cost does not include administrative expenses

Activities and Cost flows in Manufacturers For manufacturers, current assets include: ◆ Cash ◆ Receivables ◆ Inventories ◆ Raw Materials ◆ Goods in Process ◆ Finished Goods

Cost of direct material used

Manufacturing costs

Cost of good manufactured

Cost of goods sold

Predetermined Overhead Rate

This will give you the % of direct labor cost that the overhead will take up (charge) Reason for POHR: overhead is not incurred uniformly, the overhead rate changes from month to month, hence they will help to estimate job costs sooner. However, as POHR is only an estimate - The result will be either underapplied or overapplied overhead and we will adjust Cost of Goods Sold at the end of the period.

Activity Based Costing Overhead rate =

Measuring Cost Behavior - Identifying cost as either variable and or fixed cost. - Three methods: Scatter Diagrams, High-Low method and Least-squares regression High Low Method - Taking highest activity level and lowest activity level to find the unit cost -

Variable cost per unit =

-

Find fixed cost =

Contribution margin - is a product's price minus all associated variable costs, resulting in the incremental profit earned for each unit sold. - Contribution margin is the amount by which revenue exceeds the variable costs of producing the revenue - Contribution margin per unit ($) = Sales revenue unit – Variable cost unit

Contribution margin income statement

Contribution Margin Income Statement For the year 2018 Sales ($65 x 80,000) $5,200,000 Variable Cost ($30 x 80,000) $2,400,000 Contribution margin $2,800,000 Fixed cost $1,080,000 Net Profit $1,720,000

with income tax rate (30% given in question. Activity 6 question 3)

Break even point

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The break-even point (expressed in units of product or dollars of sales) is the unique sales level at which a company earns neither a profit nor incurs a loss

OR breakeven points in units x selling price

Cost-Volume Profit Analysis (CVP) - a method of cost accounting that looks at the impact that varying levels of costs and volume can have on operating profit - The cost-volume-profit analysis makes several assumptions, including that the sales price, fixed costs, and variable cost per unit are constant

Computing income from sales and costs

COMPUTING SALES FOR A TARGET INCOME Using breakeven formula and add in target income REQUIRED SALES:

-

To convert target net income to before-tax income, use the following formula: o What is the target income is before tax

Computing Margin of safety Margin of safety is the amount by which sales can drop before the company incurs a loss. Margin of safety may be expressed as a percentage of expected sales. - Shows how much % can the sales drop before they hit breakeven / making a loss

-

x 100

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Margin of safety in dollars = Current sales – Breakeven sales Margin of safety in units = Current sales units – Breakeven point

Sensitivity Analysis – when either cost have changed

Budget Activity 6 Sales Budget Sales Budget (in dollars)

Budgeted sales in units X Selling price Budgeted sales

Don Company Sales Budget October to December Apr 2020 May 2020 2,000 4,000

Jun 2020 6,000

X $50 $100,000

X $50 $300,000

X $50 $200,000

Merchandise purchase budget

Next Month’s unit sales Ending inventory % Budgeted ending inventory unit Add: Current month’s unit sales Total Units needed (budgeted ending + current months sale) Less: beginning inventory unit (ending unit of previous month) Number of Units to be purchased (total units – beginning inventory unit) Budgeted cost per unit Budgeted cost per purchase (no. unit x cost)

Don Company Merchandise Purchases budget October to December October November 800 1000

December 700

25% 200 (800 x 25%)

25% 250

25% 175

1200

800

1000

1400

1050

1175

800

200

250

600

850

925

X $80

X $80

X $80

$48,000

$68,000

$74,000

Production Budget (activity 6 question 4)

Production Budget (in units) Budgeted sales in units Ending inventory % Add: Desired ending inventory (10% of next month’s sales) Total units needed (held or available)

Apr 2020 2,000 10% 400 (10% of may) 2,400

May 2020 4,000 10% 600 (10% of June) 4,600

Jun 2020 6,000 10% 800 (10% of July) 6,800

Cash receipt budget

Sales revenue Collection in month of sale (80% of sales in the month) Collections in the following month after sale Total cash receipts

Apr 2020 $100,000 (2000 x $50) $80,000

May 2020 $200,000 (4000 x 50) $160,000

Jun 2020 $300,000 (6000 x 50) $240,000

$10,000 (20% of March’s sales)

$20,000

$40,000

$90,000

$180,000

$280,000

Cash Budget activity 6 question 6

Budgeted Income Statement

Budgeted balance sheet

Direct Material Purchases Budget (in dollars) Apr 2020 Units to be produced 2,300 X Raw material required per X1 unit (pounds) Raw material required for 2,300 production (pounds) Add: Desired ending inventory 420 (10% of next month’s needs) (10% of may) Total raw material required held 2,720 or available Less: Beginning inventory (500) From question march Raw material to be purchased 2,220 (pounds) X Cost per pound X $10 Cost of direct material $22,200 purchases Budgeted cost of purchase (activity 6 question 5)

May 2020 4,200 X1

Jun 2020 6,200 X1

4,200

6,200

620 (10% of June) 4,820

800 (10% of July) 7,000

(420) (of apr)

(620) (of may)

4,400

6,380

X $10 $44,000

X $10 $63,800...