Question 1 - On 1 July 2011 Sprintfast Couriers, which has a year-end of 30 June, purchased a delivery truck for use in its courier operations at a cost of $65 000. At the end of the truck's useful life it is expected to have a residual value of $5000. During its six-year useful life, Sprintfast Couriers Limited expected the truck to be driven 246 000 kilometres
REQUIRED - Calculate the annual depreciation charge for each of the six years of the truck's life using the following methods:
(a) the straight-line method
(b) the sum-of-digits method
(c) the declining-balance method
(d) the units-of-production method using kilometres as the basis of use and assuming the following usage:
|
Year
|
Kilometres
|
|
2012
|
28 000
|
|
2013
|
34 000
|
|
2014
|
42 000
|
|
2015
|
55 000
|
|
2016
|
68 000
|
|
2017
|
19 000
|
|
|
246 000
|
Question 2 - Star City Limited commences construction of a multi-purpose water park on 1 July 2015 for Pretoria Limited. Star City Limited signs a fixed-price contract for total revenues of $50 million. The project is expected to be completed by the end of 2018 and Pretoria Limited controls the asset throughout the period of construction. The expected cost as at the commencement of construction is $38 million. The estimated costs of a construction project might change throughout the project-in this example, they do change. The following data relates to the project (the financial years end on 30 June):
|
|
2016 ($m)
|
2017 ($m)
|
2018($m)
|
|
Costs for the year
|
10
|
18
|
12
|
|
Costs incurred to date
|
10
|
28
|
40
|
|
Estimated costs to complete
|
28
|
12
|
-
|
|
Progress billings during the year
|
12
|
20
|
18
|
|
Cash collected during the year
|
11
|
19
|
20
|
Required -
(a) Using the above data, compute the gross profit to be recognised for each of the three years, assuming that the outcome of the contract can be reliably estimated.
(b) Prepare the journal entries for the 2016 financial year using the percentage-of-completion method.
(c) Prepare the journal entries for the 2016 financial year, assuming the stage of completion cannot be reliably assessed.