Financial Statements Practice CBT 1

agg25

Could someone please tell me how to calculate the figure of 3600 for the depreciation on the cost of sales on task 1.1 i just cant seem to get it

Thanks

Jo Clark

Hello agg25

This is how I calculated the figure of £3,600 for Task 1.1.

The following is extracted from the question and is important information:-

Buildings 5% per annum Straight line basis
Plant and equipment 25% per annum Reducing balance basis
Depreciation is apportioned as follows:
%
Cost of sales 60
Distribution costs 30
Administrative expenses 10
Land, which is non-depreciable, is included in the trial balance at a value of £41,778,000


Looking at the trial balance we can see that Land & Buildings Value/Cost is £81,778,000. The note mentions that land which is not depreciable is included at a value of £41,778,000. We are advised that we calculate depreciation at 5% p/a on a straight line basis for Buildings. Therefore £81,778,000 less the land value of £41,778,000 leaves £40,000,000 to be depreciated at 5% which totals £2,000. The further information advises the apportionment of depreciation - 60% to Cost of Sales = £1,200

The same applies to Plant and Equipment. However this is to be depreciated at 25% reducing balance. Looking at the trial balance you will see that the cost was £24,000 and that accumulated depreciation is £8,000. Therefore £24,000 less £8,000 is £16,000. You then calculate 25% which is £4,000 and following the further information regarding appoortionment 60% of £4,000 is £2,400.

Taking the £1,200 from Buildings and £2,400 from Plant and Equipment gives you £3,600.

Hope this helps.

If you need anything clarifying please feel free to ask here or send me a PM.

Good luck with your CBA.

JC

agg25

Thanks for that thats a big help.

Could you also tell how to calculate the goodwill on task 1.4 then i'm sorted with this exam paper

Thanks

Jo Clark

Hello

The way that I calculated goodwill is as follows:-

Group Structure showing that Lyd is the Parent (70%) and the Wolf is the Subsidiary (30%). Note the information in the question 'Lyd Plc acquired 70% of the issued share capital of Wolf Ltd on 1 April 20X0 for £2,800,000. At that date Wolf Ltd had issued share capital of £2,000,000 and retained earnings of £280,000.'

The calculation for goodwill will be -

Cost of Investment 2,800,000
Less Net Assets Acquired
Share Capital 2,000,000
Retained Earnings 280,000

Group Share (70%) 1,596,000

Goodwill (2,800,000 - 1,596,000) 1,204,000

I hope this is clear and apologies if the calculations are all over the place! Can anyone let me know a way around this other than attaching a separate document?

Drop me a line if you need further explanation.

Best wishes.

JC