CACNO12- Accounting for Plant assets. Practice Problem PPE1.0 (LO 2) Wanzao Manufacturing purchases a factory machine at a cost of R207,000 (VAT inclusive) on January 1, 2020. Wanzao expects the machine to have a residual value of 20,000 at the end of its 4-year useful life. During its useful life, the machine is expected to be used 160,000 hours. Actual annual hourly use was 2020, 40,000: 2021, 60,000; 2022, 35,000; and 2023, 25,000. REQUIRED: a) Prepare depreciation schedules for the following methods:O) straight-line, (i) units- of-activity, and (ii) declining balance using double the straight-line rate. b) In a recent newspaper release, the CEO of Wanzo OAO asserted that something must be done about depreciation. The CEO said, "Depreciation does not come close to accumulating the cash needed to replace the asset at the end of its useful life." Draft a memo to the CEO to explain his concerns. [Submit your answers using the BB link provided] Practice Problem PPE2.1. The following expenditures were incurred by Rosenberg Construction in purchasing land: cash price R1 280 000, Municipal Rates and Taxes (accrued) R60,000, attorneys' fees R50 000, real estate agency's commission R40,000, and clearing and grading R88 000. Determine the cost of land and give the journal entry? Practice Problem PPE 2.2: At the end of its first year of operations, Brianna Industries chose to use the revaluation framework allowed under 1AS16. Brianna's ledger shows Equipment R480,000 and Accumulated Depreciation-Equipment R60,000. Prepare journal entries to record the following assumptions. a) Independent appraisers determine that the plant assets have a fair value of R468,000. b) Independent appraisers determine that the plant assets have a fair value of R400,000. Practice Problem PPE2.3. Anna Tremble has prepared the following list of statements about depreciation. a) Depreciation is a process of asset valuation, not cost allocation. b) Depreciation provides for the proper matching of expenses with revenues. c) The carrying amount of a plant asset should approximate its fair value. d) Depreciation applies to three classes of plant assets: land, buildings, and equipment e) Depreciation does not apply to a building because its usefulness and revenue producing ability generally remain intact over time. The revenue-producing ability of a depreciable asset will decline due to wear and tear and to obsolescence. g) Recognising depreciation on an asset results in an accumulation of cash for replacement of the asset. h) The balance in accumulated depreciation represents the total cost that has been charged to expense. i) Depreciation expense and accumulated depreciation are reported on the income statement CACN012- Accounting for Plant assets. j) Three factors affect the computation of depreciation: cost, useful life, and residual value. Instructions Identify each statement as true or false. If false, indicate how to correct the statement. Practice Problem PPE 3.0. Raymali Construction's trial balance at December 31, 2020, is presented as follows. All 2020 transactions have been recorded except for the items described below. Debit Credit Cash R 28,000 Accounts Receivable 36,800 Notes Receivable 10,000 Interest Receivable 0 Inventory 36,200 Prepaid Insurance 4.400 Land 20,000 Buildings 160,000 Equipment 60,000 Patents 8,000 Allowance for Doubtful Accounts R 300 Accumulated Depreciation Buildings 49,000 Accumulated Depreciation Equipment 24,000 Accounts Payable 28,300 Income Taxes Payable 0 Salaries and Wages Payable Unearned Rent Revenue 6,000 Notes Payable (clue in 2021) 11,000 Interest Payable Notes Payable (due after 2021) 35,000 Share Capital Ordinary 50,000 Retained Earnings 63,600 Dividends 12,000 Sales Revenue 910,000 Interest Revenue 0 Rent Revenue Gain on Disposal of Plant Assets Bad Debt Expense Cost of Goods Sold 630,000 -0- CACNO12- Accounting for Plant assets. 0 0 III Debit Credit Depreciation Expense Insurance Expense Interest Expense Other Operating Expenses 61.800 Amortisation Expense Salaries and Wages Expense 110.000 Total R1,177,200 R1,177,200 Unrecorded transactions: 1. On May 1, 2020, Raymond purchased equipment for R13,000 plus sales taxes of R780 (all paid in cash). 11. On July 1, 2020, Raymond sold for R3.500 equipment which originally cost R5,000. Accumulated depreciation on this equipment on January 1, 2020, was R1,800:2020 depreciation prior to the sale of the equipment was R450. On December 31, 2020, Raymond sold on account R9,400 of inventory that cost R6,600. IV. Raymond estimates that uncollectible accounts receivable at year-end is R4,000. V. The note receivable is a one-year, 8% note dated April 1, 2020. No interest has been recorded. The balance in prepaid insurance represents payment of a R4.400 6-month premium on October 1, 2020. The building is being depreciated using the straight-line method over 40 years. The residual value is R20,000. The equipment owned prior to this year is being depreciated using the straight- line method over 5 years. The residual value is 10% of cost. The equipment purchased on May 1, 2020, is being depreciated using the straight-line method over 5 years, with a residual value of R1,000. The patent was acquired on January 1, 2020 and has a useful life of 10 years from that date. XI. Unpaid salaries and wages on December 31, 2020, total R2,200. XII. The unearned rent revenue of R6,000 was received on December 1, 2020, for 4 months' rent. XIII Both the short-term and long-term notes payable is dated January 1, 2020 and carry a 9% interest rate. All interest is payable in the next 12 months. XIV. Income tax expense was R17,000. It was unpaid on December 31. Instructions a. Prepare a worksheet to use it to prepare financial statements for the period ended 31 December 2020. Handwritten on 8 money column worksheet VI. VIL VIIL IX X CACNO12- Accounting for Plant assets. b. Based on your worksheet in (a) prepare adjusting journal entries for the transactions listed above. c. Prepare the statement of profit or loss for the reporting period ended 31 December 2020 d. Prepare the statement of changes in equity for the period ended 31 December 2020. e Prepare the statement of financial position as of 31 December 2020. [submit the answer using the BB link provided] Practice problem PPE-CT9.6 Dicker Containers is suffering declining sales of its principal product, non-biodegradable plastic cartons. The managing director, Edward Mohlingo, instructs his controller, Betty Fettas, to lengthen asset lives to reduce depreciation expense. A processing line of automated plastic extruding equipment purchased for R3.1 million in January 2020, was originally estimated to have a useful life of 8 years and a residual value of R300,000. Depreciation has been recorded for 2 years on that basis, Edward wants the estimated life changed to 12 years total, and the straight-line method continued. Betty is hesitant to make the change, believing it is unethical to increase net profit in this manner. Edward says, "Hey, the life is only an estimate, and I've heard that our competition uses a 12-year life on their production equipment." Instructions Who are the stakeholders in this situation? b. Is the change in asset life unethical, or is it simply a good business practice by an astute managing director? Support your answer with reference to IAS16 What is the effect of Edward Mohlingo's proposed change on profit before taxes in the year of change? [Submit your answer using the BB link provided] Practice problem CT9.3 Use an annual report to identify a company's plant assets and the depreciation method used. REQUIRED Select a well-known company operating in the manufacturing Sector of South Africa. The company must be listed on the Johannesburg Securities exchange. Do a search on the Internet by that company name, and then answer the following questions: a. What is the name of the company? b. What is the Internet address of the annual report? c. At fiscal year-end, what is the carrying amount of its plant assets? d. What is the accumulated depreciation? e. Which method of depreciation does the company use? Page 14 CACNO12- Accounting for Plant assets. Practice Problem PPE1.0 (LO 2) Wanzao Manufacturing purchases a factory machine at a cost of R207,000 (VAT inclusive) on January 1, 2020. Wanzao expects the machine to have a residual value of 20,000 at the end of its 4-year useful life. During its useful life, the machine is expected to be used 160,000 hours. Actual annual hourly use was 2020, 40,000: 2021, 60,000; 2022, 35,000; and 2023, 25,000. REQUIRED: a) Prepare depreciation schedules for the following methods:O) straight-line, (i) units- of-activity, and (ii) declining balance using double the straight-line rate. b) In a recent newspaper release, the CEO of Wanzo OAO asserted that something must be done about depreciation. The CEO said, "Depreciation does not come close to accumulating the cash needed to replace the asset at the end of its useful life." Draft a memo to the CEO to explain his concerns. [Submit your answers using the BB link provided] Practice Problem PPE2.1. The following expenditures were incurred by Rosenberg Construction in purchasing land: cash price R1 280 000, Municipal Rates and Taxes (accrued) R60,000, attorneys' fees R50 000, real estate agency's commission R40,000, and clearing and grading R88 000. Determine the cost of land and give the journal entry? Practice Problem PPE 2.2: At the end of its first year of operations, Brianna Industries chose to use the revaluation framework allowed under 1AS16. Brianna's ledger shows Equipment R480,000 and Accumulated Depreciation-Equipment R60,000. Prepare journal entries to record the following assumptions. a) Independent appraisers determine that the plant assets have a fair value of R468,000. b) Independent appraisers determine that the plant assets have a fair value of R400,000. Practice Problem PPE2.3. Anna Tremble has prepared the following list of statements about depreciation. a) Depreciation is a process of asset valuation, not cost allocation. b) Depreciation provides for the proper matching of expenses with revenues. c) The carrying amount of a plant asset should approximate its fair value. d) Depreciation applies to three classes of plant assets: land, buildings, and equipment e) Depreciation does not apply to a building because its usefulness and revenue producing ability generally remain intact over time. The revenue-producing ability of a depreciable asset will decline due to wear and tear and to obsolescence. g) Recognising depreciation on an asset results in an accumulation of cash for replacement of the asset. h) The balance in accumulated depreciation represents the total cost that has been charged to expense. i) Depreciation expense and accumulated depreciation are reported on the income statement CACN012- Accounting for Plant assets. j) Three factors affect the computation of depreciation: cost, useful life, and residual value. Instructions Identify each statement as true or false. If false, indicate how to correct the statement. Practice Problem PPE 3.0. Raymali Construction's trial balance at December 31, 2020, is presented as follows. All 2020 transactions have been recorded except for the items described below. Debit Credit Cash R 28,000 Accounts Receivable 36,800 Notes Receivable 10,000 Interest Receivable 0 Inventory 36,200 Prepaid Insurance 4.400 Land 20,000 Buildings 160,000 Equipment 60,000 Patents 8,000 Allowance for Doubtful Accounts R 300 Accumulated Depreciation Buildings 49,000 Accumulated Depreciation Equipment 24,000 Accounts Payable 28,300 Income Taxes Payable 0 Salaries and Wages Payable Unearned Rent Revenue 6,000 Notes Payable (clue in 2021) 11,000 Interest Payable Notes Payable (due after 2021) 35,000 Share Capital Ordinary 50,000 Retained Earnings 63,600 Dividends 12,000 Sales Revenue 910,000 Interest Revenue 0 Rent Revenue Gain on Disposal of Plant Assets Bad Debt Expense Cost of Goods Sold 630,000 -0- CACNO12- Accounting for Plant assets. 0 0 III Debit Credit Depreciation Expense Insurance Expense Interest Expense Other Operating Expenses 61.800 Amortisation Expense Salaries and Wages Expense 110.000 Total R1,177,200 R1,177,200 Unrecorded transactions: 1. On May 1, 2020, Raymond purchased equipment for R13,000 plus sales taxes of R780 (all paid in cash). 11. On July 1, 2020, Raymond sold for R3.500 equipment which originally cost R5,000. Accumulated depreciation on this equipment on January 1, 2020, was R1,800:2020 depreciation prior to the sale of the equipment was R450. On December 31, 2020, Raymond sold on account R9,400 of inventory that cost R6,600. IV. Raymond estimates that uncollectible accounts receivable at year-end is R4,000. V. The note receivable is a one-year, 8% note dated April 1, 2020. No interest has been recorded. The balance in prepaid insurance represents payment of a R4.400 6-month premium on October 1, 2020. The building is being depreciated using the straight-line method over 40 years. The residual value is R20,000. The equipment owned prior to this year is being depreciated using the straight- line method over 5 years. The residual value is 10% of cost. The equipment purchased on May 1, 2020, is being depreciated using the straight-line method over 5 years, with a residual value of R1,000. The patent was acquired on January 1, 2020 and has a useful life of 10 years from that date. XI. Unpaid salaries and wages on December 31, 2020, total R2,200. XII. The unearned rent revenue of R6,000 was received on December 1, 2020, for 4 months' rent. XIII Both the short-term and long-term notes payable is dated January 1, 2020 and carry a 9% interest rate. All interest is payable in the next 12 months. XIV. Income tax expense was R17,000. It was unpaid on December 31. Instructions a. Prepare a worksheet to use it to prepare financial statements for the period ended 31 December 2020. Handwritten on 8 money column worksheet VI. VIL VIIL IX X CACNO12- Accounting for Plant assets. b. Based on your worksheet in (a) prepare adjusting journal entries for the transactions listed above. c. Prepare the statement of profit or loss for the reporting period ended 31 December 2020 d. Prepare the statement of changes in equity for the period ended 31 December 2020. e Prepare the statement of financial position as of 31 December 2020. [submit the answer using the BB link provided] Practice problem PPE-CT9.6 Dicker Containers is suffering declining sales of its principal product, non-biodegradable plastic cartons. The managing director, Edward Mohlingo, instructs his controller, Betty Fettas, to lengthen asset lives to reduce depreciation expense. A processing line of automated plastic extruding equipment purchased for R3.1 million in January 2020, was originally estimated to have a useful life of 8 years and a residual value of R300,000. Depreciation has been recorded for 2 years on that basis, Edward wants the estimated life changed to 12 years total, and the straight-line method continued. Betty is hesitant to make the change, believing it is unethical to increase net profit in this manner. Edward says, "Hey, the life is only an estimate, and I've heard that our competition uses a 12-year life on their production equipment." Instructions Who are the stakeholders in this situation? b. Is the change in asset life unethical, or is it simply a good business practice by an astute managing director? Support your answer with reference to IAS16 What is the effect of Edward Mohlingo's proposed change on profit before taxes in the year of change? [Submit your answer using the BB link provided] Practice problem CT9.3 Use an annual report to identify a company's plant assets and the depreciation method used. REQUIRED Select a well-known company operating in the manufacturing Sector of South Africa. The company must be listed on the Johannesburg Securities exchange. Do a search on the Internet by that company name, and then answer the following questions: a. What is the name of the company? b. What is the Internet address of the annual report? c. At fiscal year-end, what is the carrying amount of its plant assets? d. What is the accumulated depreciation? e. Which method of depreciation does the company use? Page 14