Cost of goods sold (COGS) = Opening Stock + Purchases –Closing Stock Opening stock 0 Add: Purchases 240,000 Less: closing stock (200000) 40,000 Opening Stock 200,000 Add: Purchases 300,000 Less: Closing Stock 175,000 Cogs 325,000Total Cogs by year = (325,000 +40,000) = 365,000The cost of the goods are calculated periodically where by the cost of closing stock per commodity is calculated by averaging the two cost of purchasing. i.e. (600+800)/2 To get the new cost per commodity to be sold i. e. $ 700.Q6.The international accounting standards number 17 gives us a good insight of the types of leases in the market.
The IAS 17 gives only two types of leases; these are the finance lease and operating lease. IAS 17 goes ahead and differentiates the two types of leases using the substance over form as the most factor in giving the distinction; Finance lease is when the all substance risk are transferred to the lessee at the point of signing out the lease agreement while operating lease is a situation where the substance risk remains with the owner of the property to be leased out.
The control of the car in question still remains with the owner though the benefits will go to the company. The risk still remains with the owner of the car hence we can conclude that the lease is an operating lease. (Bath, 2006)The lease is only for 3 years while the car life is 8years, this still qualify this lease to be operating lease although the control of the asset is the most crucial aspect in determining the type of the lease. Q7. Lease calculationCost of the car $ 40,407 Used value of the car is 5000+ (800*3) = 29000/3 Monthly payment = 9667 annually = (40407+29000)*10% = 6947Total annual payment = 6947+9667 = 16608.
Lease payment annually. Q8. Straight line method of depreciation is given byDpn = (C-R)/NWhere. Dpn – is the annual depreciation C - Cost of the Asset R- Residual Value N- Expected life of the asset. Cost of the coach $ 20,000Residual value $ 0Expected life 6 years Dpn = (20000-0)/6 = $ 333Cost of the car $ 40,407Residual value $ 0Expected life period 8 yearsDpn =$ (40407-0)/8 = $ 5051JournalDatedescriptionFolioDr $ Cr $30-Jul-13depreciation of couch333Couch 19,667 To record depreciation of asset couch30-Jul-13depreciation of car 5,051 car 35,356 ReferencesBath, M.
(2006). Including estimates of the future in today’s financial statements. Accounting Horizon