Prepare the following three-months (January to March 2021) budget as required by the bankers a) The budgeted statement of financial position/ Balance Sheet
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Below is the information as at the end of accounting year of December 2020:
Details RM
Debtors 23,000
Bank 55,000
Fixed asset at cost 698,000
Accumulated
Creditors 48,000
Operating expenses for December 60,000
Sales for December 400,000
Ending inventory 20,000
The following additional information was also provided to assist your work.
i) Depreciation is provided at the rate of 5% on cost of non-current assets per month.
ii) Closing inventory is expected to increase by RM2000 in January from December levels. This is expected to increase by the same figure in February from the projected figure in January. It is expected that in March closing inventory is desired to be RM26,000
iii) The company makes a profit of 25% on its sales.
iv) Operating expenses is expected to increase by 10% from that of December in January and this is projected to increase at the same growth rate until March.
v) Sales is projected to grow by 15% per month from December until March.
vi) Debtors figure at the end of the month is desired to be proportional to the sales values.
vii) Creditors value for the three months are expected to be as follows:
January - RM50,000; February – RM46,000; March – RM52,000
REQUIRED:
Prepare the following three-months (January to March 2021) budget as required by the bankers
a) The budgeted
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