Assignment
.pdf
School
Mahatma Gandhi Kashi Vidyapith**We aren't endorsed by this school
Course
SCIENCE BACHELOR O
Subject
Accounting
Date
Jan 4, 2025
Pages
7
Uploaded by BarristerRose15919
Q.1. Solution:Return on Investment (ROI) is calculated as the net operating income divided by the average operating assets:ROI = Net Operating Income / Average Operating AssetsROI = $5,60,000 / $7,000,000ROI = 0.08 or 8%Residual Income is calculated as the net operating income minus the minimum required return on assets multiplied by the average operating assets:Residual Income = Net Operating Income - (Minimum Required Return x Average Operating Assets)Residual Income = $5,60,000 - (0.10 x $7,000,000)Residual Income = $560,000 - $700,000Residual Income = -$140,000Since the residual income is negative, it means that the division is not generating enough profit to cover the minimum required return. Therefore, it may not be considered as a profitable division.Q.2. Solution:To calculate the direct material price and quantity variances, we can use the following formulas:Direct Material Price Variance:Price Variance = (Standard Price - Actual Price) * Actual QuantityDirect Material Quantity Variance:Quantity Variance = (Standard Quantity - Actual Quantity) * Standard PriceLet's calculate each variance:Direct Material Price Variance:Standard Price per pound = $3
Actual Price per pound = Actual Cost of Direct Material / Actual Quantity = $687,500 / 250,000 pounds = $2.75 per poundPrice Variance = ($3 - $2.75) * 250,000 pounds = $62,500 (Unfavourable)Direct Material Quantity Variance:Standard Quantity = Standard Direct Material per unit * Actual Units ProducedStandard Direct Material per unit = 3 poundsActual Units Produced = 60,000 unitsStandard Quantity = 3 pounds * 60,000 units = 180,000 poundsQuantity Variance = (180,000 pounds - 250,000 pounds) * $3 per pound = -$210,000 (Favourable)So, the direct material price variance is $62,500 unfavourable, and the direct material quantity variance is $210,000 favourable.Q.3. Solution: The starting point for calculating cash flow from operating activities is net income. The next step is to add back the non-cash depreciation expense of $63,000. It has to be added back since it was subtracted when net income was calculated, but it does not involve a cash outflow.The next step is to add back the loss on the investment sale of $16,800.This has to be added back since it was subtracted when net income was calculated, but it does not involve a cash outflow. The decrease in accounts receivable is added since cash collections exceeded credit sales.This means net income understates cash provided by operating activities. The increase in accounts payable is added since inventory purchases exceeded payments for inventory.This means that cost of goods sold overstates cash used to purchaseinventory, which means net income understates cash provided by operating activities.The final result is a net inflow from operating activities of $354,200.
Working Note:($207,200 + $63,000 + $16,800 + $35,000 + $32,200) = $354,200Q.4. Solution: To prepare a bank reconciliation statementand record the necessary journal entries, we need to adjust the book balanceand bank balancefor all the discrepancies identified. Here's how we'll proceed with the given data:1. Bank Reconciliation StatementAdjustments to the Bank Balance:•Bank Balance: $4,487•Add: Deposit in transit: $1,590 (This deposit has been recorded in the books but not yet reflected in the bank balance.)Adjusted Bank Balance = $4,487 + $1,590 = $6,077•Less: Outstanding checks: $729 (These checks have been recorded in the books but not yet cleared the bank.)Adjusted Bank Balance = $6,077 - $729 = $5,348Adjustments to the Book Balance:•Book Balance: $5,899•Add: Interest income: $35 (This income has been earned by the company but has not yet been recorded in the books.)Adjusted Book Balance = $5,899 + $35 = $5,934•Less: NSF check: $586 (A check that was deposited by the company but bounced. This needs to be subtracted from the book balance.)Adjusted Book Balance = $5,934 - $586 = $5,348Final Reconciled Balances:•Adjusted Bank Balance: $5,348•Adjusted Book Balance: $5,348
Both the adjusted bank balance and the adjusted book balance now match, meaning the reconciliation is complete.Journal EntriesNow, let’s record the necessary journal entries to reconcile the book balance:Journal Entry for Interest Income:When the company receives interest income that has not yet been recorded in the books, we will record it as follows:Journal Entry:Date Account Debit Credit----------------------------------------------------------Bank $35To Interest Income $35Journal Entry for NSF Check:When a customer’s check bounces (NSF check), the company needs to reverse the deposit and reduce the bank balance in the books:Journal Entry:Date Account Debit Credit-------------------------------------------------------------------Accounts Receivable $586To Bank $586The entry moves the NSF check amount back to accounts receivable, effectively reversing the deposit that was originally made.Final Outcome:•Adjusted Bank Balance: $5,348•Adjusted Book Balance: $5,348The reconciliation has been completed, and necessary journal entries have been recorded for the interest incomeand NSF check.
Q.5. Solution: To calculate the actual net income for Harman-Kardon Consulting Company for the first year of operations, we need to determine the revenues and expenses based on the given information. Here's how we approach the calculation:Revenues:•Cash collected from customers: $120,000•However, the customers owed the company $60,000 at the end of the year, so we need to account for the accounts receivable. Since there were no bad debts anticipated, the total revenue for the year would be the amount collected plus the accounts receivable.Revenue= Cash collected from customers + Accounts receivableRevenue= $120,000 + $60,000 = $180,000Expenses:•Cash paid for rent: $40,000 (This payment covers two years, so the expense for one year is $40,000 ÷ 2 = $20,000)Rent expense= $20,000•Cash paid to employees for services rendered during the year: $120,000Employee expense= $120,000•Cash paid for utilities: $50,000Utility expense= $50,000•Accrued utilities: The company owes $2,000 at year-end for utilities. Since the expense is recognized in the year it is incurred, we need to add the $2,000 to the utility expense to reflect the total expense for the year.Total utility expense= $50,000 (paid) + $2,000 (accrued) = $52,000Actual Net Income Calculation:Net Income = Revenue - Expenses1.Total revenue= $180,0002.Total expenses:oRent expense = $20,000
oEmployee expense = $120,000oUtility expense = $52,000Total expenses= $20,000 + $120,000 + $52,000 = $192,000Net Income= Revenue - Expenses = $180,000 - $192,000 = -$12,000Therefore, the actual net income for the year is a net loss of $12,000.Q.6. Solution: To calculate the impairment loss on goodwill for Fifer Co’s acquisition of Grampian Co, we need to follow these steps:Step 1: Determine the amount of goodwill initially recognizedGoodwill is calculated as the difference between the purchase price and the fair value of the net assets acquired.•Purchase Price (for 80% equity shares): $5,000,000•Fair Value of Grampian Co’s Net Assets: $4,000,000The amount of goodwill is based on the full purchase price(not just Fifer Co's 80% share) and the total fair value of net assets. Since Fifer Co acquired 80% of the shares, it effectively controls 80% of Grampian Co's net assets, but goodwill reflects the full acquisition of the company.Goodwill Calculation:Goodwill = PurchasePrice− (FairValueofNetAssets × TotalPercentage Acquired)Goodwill = 5,000,000-4,000,000 = 1,000,000Thus, the total goodwill at the date of acquisition is $1,000,000.Step 2: Calculate the impairment of goodwillOn 31 December 20X4, Fifer Co determines that goodwill is impaired by 10%. To find the impairment amount, we multiply the goodwill by 10%.Impairment Calculation:Impairment Of Goodwill = Goodwill × Impairment Percentage
Impairment Of Goodwill = 1,000,000 × 10%= 1,00,000Thus, the impairment loss is $100,000.Step 3: Adjust the goodwill on the balance sheetAfter recognizing the impairment loss, the adjusted goodwill will be:Adjusted Goodwill = Original Goodwill- Impairment LossAdjusted Goodwill = 1,000,000-1,00,000= 9,00,000Conclusion:•The initial goodwill recognized at the acquisition date was $1,000,000.•The impairment loss for goodwill at 31 December 20X4 is $100,000.•The adjusted goodwill after the impairment is $900,000.