Answered: a) ABC Lid acquired a new packing line…

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter12: Current Liabilities

Section: Chapter Questions

Problem 1PB: Consider the following situations and determine (1) which type of liability should be recognized...

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a) ABC Lid acquired a new packing line from QE Ltd on hire purchase on January 1, 201 1. The

cash price (list price) was GHS54,000. The hire purchase agreement is as follows:

• Initial deposit payment of GH59,000 on January 1, 2011;

Payment of two annual instalment of GHS24,000 on December 31 of 2011, 2012 and

a final instalment of GHS20,39 1 on December 31, 2013.

• Implicit rate of interest is 25% per annum.

It is the policy of ABC to depreciate the PL on straight line basis over 10 years, with no

salvage value.

Required:

Show the ledger entries for the above transactions in the books of ABC Ltd

b) On 1 October 2018 XYZ Ltd acquired a machine under the following terms.

Hours

Manufacturer's base price

Trade discount (applying to base price only)

Early settlement discount taken (on the payable amount of the

base cost only)

Freight charges

Electrical installation cost

Staff training in use of machine

Preproduction testing

Purchase of a three-year maintenance contract

Estimated residual value

Estimated life in machine hours

Hours used - year ended 30 September 2019

-year ended 30 September 2020

GHS

3.150.000

20%

90.000

84.000

120.000

66,000

180,000

60,000

18.000

3.600

5,400

-year ended 30 September 2021 (see below)

2.550

On 1 October 2020 XYZ Ltd decided to upgrade the machine by adding new components at a

cost of GHS600,000. This upgrade led to a reduction in the production time per unit of the goods

being manufactured using the machine. The upgrade also increased the estimated remaining life

of the machine at 1 October 2020 to 13.500 machine hours and its estimated residual value was

revised to GHS120,000.

Required:

Prepare extracts from the statement of profit or loss and statement of financial position for the

above machine for each of the three years to 30 September 2021.

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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