Cash Management questions

SandyHood
SandyHood Registered, Moderator Posts: 2,034
I received a request for explanations of techniques relevant to cash management.
Here is a copy of my first response:
How do you find the cash paid for non-current assets?
how to calculate cash paid to acquire non current assets
You might be told that the company had non- current assets which had cost £40,000 and had an accumulated depreciated balance of £16,000 at the start of the year and that it had non-current assets with a carrying value of £30,000 at the end of the year.


I would draw up a T account:
In the debits enter balance brought forward £24,000 [*]
In the credits ender balance carried down £31,000

*£40,000 - £16,000 = £24,000
You may then be told that the business has a 10% straight line depreciation policy that it applies annually and that it depreciates assets in the year of acquisition but not in the year of disposal.
One piece of equipment had been bought 3 years ago for £10,000 has been sold during the year for
£ xx not relevant.


You can then calculate the depreciation of the non-current assets held at the beginning of the year and still held at the end of the year: Cost £40,000 - disposal at cost £10,000 = £30,000
x 10% = £3,000 This is a credit entry into your T account


Then credit the asset disposed off either credit £8,000 [or credit the cost of £10,000 and debit the accumulated depreciation at the start of the year of £2,000].


This will give you a T account with the debits:
Balance brought forward £24,000


And the credits
Balance carried down £31,000
Depreciation expense (existing assets) £3,000
Disposal £8,000


You can tell from the difference (£42,000 - £24,000) of £18,000 that something needs to go into the debit column. We could add the £18,000 and it would all balance. But we know that depreciation is carried out on all acquisitions. This means that the cash spent would be more than the £18,000 carrying value.
As the cash paid represents 100% and depreciation is 10% that tells us that the £18,000 is 90% of the cash paid.
By calculating £18,000 divided by 90% we get £20,000
We paid cash of £20,000 top acquire non-current assets

I hope that helps you to address the question:
how do I calculate cash paid to acquire non current assets?


Use your double entry book keeping and keep the steps to one at a time
Sandy
[email protected]
www.sandyhood.com

Comments

  • pittuck23
    pittuck23 Registered Posts: 6
    hi sandy

    i was wondering if you could help with question 5b in the cash management practice assessment 2?

    Im struggling with the balances and it's the only thing i'm unsure of in the whole paper!

    THanks

    Sam
  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034
    Dear Sam
    I'm sorry. I don't have access to any practice assessment questions.
    I would need you to show me the question yourself before I can answer it
    Yours
    Sandy
    [email protected]
    Sandy
    [email protected]
    www.sandyhood.com
  • pittuck23
    pittuck23 Registered Posts: 6
    Hi Sandy

    I have emailed you.
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