Question 1: The financial year of Kirk Ltd ends on 31 December 2011. At 1 January 2011 the given balances existed in the books of Kirk Ltd.
Rs
Motor Vehicles at cost 53,000
Provision for Depreciation on Motor Vehicles 21,500
On 31 July 2011, Motor Vehicle originally costing Rs 24,000 was sold for Rs12,600. The accumulated depreciation on this Motor Vehicle as at 1 January 2011 was Rs7,200.
On 1 October the company acquired a new motor vehicle at the cost of Rs15,600.
The company’s policy is to depreciate the Motor Vehicles at 10% per annum, by using the straight line method. Motor Vehicles are depreciated for each proportion of a year.
Required:
a) Make the following accounts for the year ended 31 December 2011.
• Motor Vehicles Account
• Provision for Depreciation Account
• Disposal Account
b) By using suitable illustrations distinguish between capital expenditure and revenue expenditure.
Question 2: Kirk Ltd. has been making provision for doubtful debts at the rate of 6% of account receivable for the past five years. Though the company intends to change this rate for the year ending December 2011 to 8% due to changes in the market conditions. On 1 January 2011 the balances were as shown below:
Account Receivable Rs 14,200
Provision for Doubtful Debts Rs 852
During the year ended 31 December 2011 bad debts written off amounted to Rs1,090. Sales for the year were Rs 101,250 of which 15% were on cash and receipts from debtors amounted to Rs 85,400.
Required:
a) Prepare the given for the year ended 31 December 2011.
• Account Receivable
• Provision for Doubtful Debts Account
b) Describe the four principal qualitative characteristics of Financial Information:
• Understandability
• Comparability
• Reliability
• Relevance