Question 3

1. Financial Accounting

SSG Ltd has an accounting year end of 31 March. It purchased a truck on 1 April 2013 at a total cost of 20,000.

At the date of purchase, the truck had an estimated useful life to the business of eight years, and has an estimated residual value of 3,000.

The truck was traded in for a replacement vehicle on 31 March 2018 at an agreed valuation of 10,000. The truck was depreciated on a straight-line basis, with a pro-rata charge in the year of acquisition and disposal.

Required:

1. Explain the main difference between the two methods of depreciation that can be applied to non-current tangible assets, such as property plant and equipment.

[3 marks]

1. Calculate the profit or loss on disposal of the truck.

[7 marks]

2. Management Accounting

Ivy Plc makes three products: Azalea, Begonia and Camelia. All products use the same materials and the availability of material next month is limited to 22,000 litres. Management information for the three products is shown in Table 1 below:

Table 1 Management information

Product	Azalea	Begonia	Camelia
Demand (in units)	4,000	6,500	5,000
Variable Costs to make ( per unit)	12	13	16
Buy-in price ( per unit)	14	16	17
Litres of material required per unit	2.5	2	2

Required:

Which products should the company make and which should it buy to fulfil demand for the three products? Present your answers in a table with appropriate headings and a final decision.

[10 marks]