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# Accounting Essay

1683 words - 7 pages

Masters in Management BMAN 73071 Introduction to Accounting
First Assessment – Financial Reporting

Part A. A short answer only is required.
How will each of the following affect the amount of cash in a limited liability company?
(i) A write down of the value of the company’s office block.
(ii) The amortisation of one of the company’s brands by 20%.
(iii) A decrease in the level of inventories.
(iv) An issue of 10,000 £1 preference shares at £1.50 per share.
(v) A bonus issue of ordinary shares.
(vi) The sale by a major shareholder of all her shares in the company.
The owner of a business asks you to explain why his accountant says he has made a profit of ...view middle of the document...

Calculate the depreciation charge for this machine and show what values will be disclosed in the Income Statement and Statement of Financial Position (SOFP) for each of the 4 years the company expects to own the machine, assuming
(i) That the company uses the straight line method of depreciation
(ii) That the machine is to be depreciated using the reducing balance method at a rate of 25%.

（i） Straight－line method
Annual depreciation＝（Cost - Residual value）/ Asset life
= (100,000 – 20,000) / 4
= 20,000

Income Statement Year 1
Machine Depreciation 20,000

Statement of financial position Year 1
Asset
Machine (100,000-20,000) 80,000

Income Statement Year 2
Machine Depreciation 20,000

Statement of financial position Year 2
Asset
Machine (80,000-20,000) 60,000

Income Statement Year 3
Machine Depreciation 20,000

Statement of financial position Year 3
Asset
Machine (60,000-20,000) 40,000

Income Statement Year 4
Machine Depreciation 20,000

Statement of financial position Year 4
Asset
Machine (40,000-20,000) 20,000

（ii） Reducing balance method
Annual residual value = Cost × (1- Rate) ^n

Income Statement Year 1
Machine Depreciation （100,000 × 25％） 25,000

Statement of financial position Year 1
Asset
Machine (100,000-25,000) 75,000

Income Statement Year 2
Machine Depreciation （75,000 × 25％） 18,750

Statement of financial position Year 2
Asset
Machine (75,000-18,750) 56,250

Income Statement Year 3
Machine Depreciation （56,250× 25％） 14,062.5

Statement of financial position Year 3
Asset
Machine (56,250 -14,062.5) 42,187.5

Income Statement Year 4
Machine Depreciation （42,187.5× 25％） 10,546.875

Statement of financial position Year 4
Asset
Machine (42187.5 -10546,875) 31,640.625

Part C
It is now reasonably common for companies to place a monetary value on their brands. However, the accounting profession was initially sceptical about this practice and many accountants remain concerned.
You are required to identify a company of your choice that includes the value of its brands on the SOFP. From the financial statements identify the value of the brands and compare this to the value of the company’s other assets. Then answer the following questions.
(i) In your own words, but using the notes to the accounts to help you, explain the company’s accounting policy in relation to its brands. This can involve an explanation of how the...

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