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Winston owns a business which has a financial year end of 31 December 2020 . The table below shows the following ledger account balances of
Winston owns a business which has a financial year end of 31 December 2020. The table below shows the following ledger account balances of the business.
Dr | Cr | |
Balance sheet accounts: | ||
Fixtures and fittings at cost (at 31/12/2019) | 150,000 | |
Fixtures and fittings accumulated depreciation (at 31/12/2019) | 60,000 | |
Motor vehicles at cost (at 31/12/2019) | 80,000 | |
Motor vehicles accumulated depreciation (at 31/12/2019) | 20,000 | |
Receivables (at 31/12/2020) | 390,000 | |
Allowance for receivables (at 31/12/2019) | 20,000 |
The following information is relevant:
- Motor vehicles are depreciated at 25% per annum using the reducing balance method.
- Depreciation on fixtures and fittings is provided at 20% per annum on the straight-line basis, assuming no residual value.
- Winston estimates that 26,800 due from customers will be irrecoverable and must be written off.
- The allowance for receivables is to be set at 4% of net receivables at 31 December 2020.
- There were no additions and disposals of non-current assets during the year.
Required:
- a.Prepare the non-current assets note using the layout as shown in the table below. Show your workings.
(12 marks)
Non-current assets | Fixtures & Fittings | Motor vehicles | Total |
Cost | |||
At 31 December 2019 | |||
Additions | |||
Disposals | |||
At 31 December 2020 | |||
Accumulated depreciation | |||
At 31 December 2019 | |||
Charge for the year | |||
Depreciation on disposal | |||
At 31 December 2020 | |||
Carrying amount | |||
At 31 December 2019 | |||
At 31 December 2020 |
- a. In 100 words or less, give an argument for, and an argument against, Winstons depreciation policy in respect of fixtures and fittings.
- b.In 100 words or less, explain the process that Winston may have followed to arrive at the conclusion that 26,800 is likely to be irrecoverable from customers.
- c In 100 words or less, give an argument for, and an argument against, Winstons policy of setting the allowance for receivables at a specific figure of 4% of net receivables at the end of the year.
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