TSJ Limited is a manufacturing firm, specializing in construction equipment. The following balances were extracted from the books at October 31, 2021. Capital 48,000 Provision for unrealized profit 1,380 Stock at November 1, 2020: Raw materials 7,000 Work-In-Progress 5,000 Finished goods 6,900 Purchases of raw materials 38,000 Direct labour 28,000 Rent & rates 35,000 Electricity 15,000 Postages & stationery 2,000 Administrative staff salary 19,380 Sales 192,000 Plant & Machinery at cost 30,000 Motor vehicles at cost 16,000 Provision for Depreciation: Plant & Machinery 12,000 Motor vehicles 4,000 Creditors 5,500 Debtors 28,000 Drawings 11,500 Bank 16,600 Advertising 4,500 Additional Information: 55% of rent and rates relates to the office 60% of electricity relates to the factory Stock at 31 October 2021 were as follows: Raw materials $ 9,000 Work in progress $ 8,000 Finished goods $10,350 Factory cost is transferred to trading at a profit of 25% Depreciate plant and machinery at the rate of 10% per annum on the reducing balance method and motor vehicles at 25% per annum on cost Direct labour accrued at December 31,2020 amounted to $3,000 and rent and rates prepaid was $2,000 Required: Prepare a manufacturing, income statement for the year ended October 31, 2021 Prepare a statement of financial position as at October 31, 2021
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
TSJ Limited is a manufacturing firm, specializing in construction equipment. The following balances were extracted from the books at October 31, 2021.
|
|
|
|
Capital |
48,000 |
|
Provision for unrealized profit |
1,380 |
|
Stock at November 1, 2020: |
|
|
Raw materials |
7,000 |
|
Work-In-Progress |
5,000 |
|
Finished goods |
6,900 |
|
Purchases of raw materials |
38,000 |
|
Direct labour |
28,000 |
|
Rent & rates |
35,000 |
|
Electricity |
15,000 |
|
Postages & stationery |
2,000 |
|
Administrative staff salary |
19,380 |
|
Sales |
192,000 |
|
Plant & Machinery at cost |
30,000 |
|
Motor vehicles at cost |
16,000 |
|
Provision for |
|
|
Plant & Machinery |
12,000 |
|
Motor vehicles |
4,000 |
|
Creditors |
5,500 |
|
Debtors |
28,000 |
|
Drawings |
11,500 |
|
Bank |
16,600 |
|
Advertising |
4,500 |
Additional Information:
- 55% of rent and rates relates to the office
- 60% of electricity relates to the factory
- Stock at 31 October 2021 were as follows:
Raw materials $ 9,000
Work in progress $ 8,000
Finished goods $10,350
Factory cost is transferred to trading at a profit of 25%- Depreciate plant and machinery at the rate of 10% per annum on the
reducing balance method and motor vehicles at 25% per annum on cost - Direct labour accrued at December 31,2020 amounted to $3,000 and rent and rates prepaid was $2,000
Required:
- Prepare a manufacturing, income statement for the year ended October 31, 2021
- Prepare a statement of financial position as at October 31, 2021
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