Past paper FRA again!
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I am stuck on a past paper again! Why on the dec 2005 paper for task 2.1 in the adjustments for vehicle cost do we debit 13500 and credit 12000 & 10000, it doesnt make sense to me?
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Re:Past paper FRA again!
OK. We are told a number of things. First we are told that £10,000 was paid for the new vehicle (i.e. this is the part of the cost that we have to pay after the trade in allowance. This was credted to the bank (correctly) and debited to vehicles at cost account. The credit in the adjustment column is to remove that entry.
We can work out that the new vehicle must have cost £13,500 (the £10,000 that we paid plus the trade in allowance). This is the amount that we need to debit to the vehicles at cost account. (OK we could have just debited £3,500 and left the original £10,000 in - I am certain that that would have been equally acceptable in the exam)
Finally we are told that the original cost of the vehicle now disposed of was £12,000. This needs to be removed (i.e. credited) from the vehicles at cost account (and debited to the disposal account).
Does this help?
Graham Blott0 -
Re:Past paper FRA again!
Hi
Haven't got round to doing this one yet, but have discussed this particular question with a friend, and we came up with the following......
The vehicle accounts shows assets - a debit.
You are trading in a vehicle so you need to reduce the vehicle account to reflect this, so you enter a credit for the amount of the vehicle at cost (in this case £12,000).
Then you need to show that a down payment of £10,000 has been paid - again a credit to the account.
Finally the new vehicle invoice is entered as a debit for £13,500.
Hope this helps a bit.
Tracy0 -
Re:Past paper FRA again!
If it's any consolation, I got this wrong when doing the exam for real. It was only when I found the profit on the P&L and the B/S were £10,000 out that I realised my mistake.
Having had all FRA knowledge driven from my head by costing I can't be of much help but what Graham said looks about right
Chris0 -
Re:Past paper FRA again!
Hi this is the infamous question from last years paper, my tutor is a marker and set us this question after the papers were released to the gen public to see what we made of it asit was answered badly by nearly all the people who sat the exam. I beleive it was discussed in the markers feedback session and it was felt the question had been confusing in its wording and getting its meaning across. Ironically we have been doing this question again today and what Graham says is right but people came up with various ways of doing it0 -
Re:Past paper FRA again!
I completed this question in my lesson this week. My teacher explained to us at the beginning that there was a badly worded qu but wouldnt say which one until we got to it. You guessed it, we all tried it and all got confused!
Once you know what they mean it makes sense but I dont think enough info is given (About what is already been entered in the tb etc)
Just hope a qu worded like that does not come up in the exam!!!!0 -
Re:Past paper FRA again!
Apparently around 80% of students got this wrong last year and so they looked again at trying to stop ambiguous questions getting in0 -
Re:Past paper FRA again!
DOUBLE ENTRY FOR THE ASSET PURCHASED AND DISPOSALS
Debit Vehicles Asset 3500 (Part exchange )
Credit Disposals 3500 (Part exchange )
Credit Vehicle Asset 12000
Debit Disposals 12000
Debit Accumulated Depreciation Vehicle Asset 5856
Credit Disposals 5856
Therefore loss on disposal=12000-3500-5856=2644
The balance of the Vehicle Asset is
22000+3500-12000= 13500
The balance on Accumulated depreciation on Vehicles before depreciation takes place is 5856 - 5856 = 0
Depreciation charge on Vehicle Asset is
25%(13500-0) = 3375
Accumulated Depreciation on Vehicle Asset is
3375+ 0 = 33750