file updatedAssignment Question(s): (20 Marks) Q1 a) Explain the methods that can estimate bad...

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file updatedAssignment Question(s):						(20 Marks) Q1 a) Explain the methods that can estimate bad debt expenses in business. (Give numerical examples)  (1 Mark) b.) Differentiate between Accounts receivable and Notes receivable. (1 Mark) c) On 1st of October 2019, XYZ Inc. has sold an equipment for $ 25,000 to ABC Ltd.by issuing an 8% note receivable for 90 days. Calculate the interest on the note and on what would be the maturity date. Pass Journal entry in the books of the company to record these transactions. (2 Marks) Q2. On 1st April 2008 Abdulla installs a new machinery costing SAR 312,000 with a five year life and estimated salvage value of SAR28000. Management estimates that the machine will produce 1136000 units of the product during its lifetime. Actual units of production were as follows:   1st year   245600 units,  2nd year 230400 units,  3rd year 227000 units,  4th year 232600 units &  5th year 200400 units.  Compute depreciation Expenses under Straight-line method, Double declining balance method and Units of production Method method the machine must not be depreciated below its estimated salvage value. (6 Marks) Q3 On Dec 31, 2019, XYZ Company sells a machine that originally cost $150,000 for $90,000 cash. The machine was placed in service on January 1, 2015.  It was depreciated using the straight-line method with an estimated salvage value of $25,000 and a useful life of 10 years. Determine the profit or loss made on disposal of the machine and pass Journal Entry. .(5 Marks) b. Depletion and Amortization are the processes of allocating the cost of a of different asset to expense in the accounting periods benefiting from its use. Explain the assets applicable for such processes.(2 Marks) Q4. Distinguish between Current/Short term Liabilities and Non-current/Long term Liabilities. Illustrate your answer with journal entries as examples. (3 Marks)

Khushboo · Accepted Answer

Solution 1:
a. The bad debt expenses can be calculated based on estimated percentage as provision on closing trade receivables. For example, trade receivables are $100,000 and the estimated bad debt percentage is 2% of closing trade receivable as bad debt expenses so bad debt expenses will be $100,000 * 2% = $2,000.
b. Accounts receivable is an informal contract between entity and customers and generally last up to one year (Steven Bragg, 2019). Further generally, there is no interest cost element in accounts receivables. Notes receivables are formal and legal contract which generally occurs over a year and includes interest component.
c. Calculation of notes receivables components:
	Issue date of notes receivables
	01.10.2019
	Period of notes receivables
	90 days
	Maturity date of notes receivables
	01.10.2019+ 90 days = 29.12.2019
	
	
	Interest rate
	8%
	Notes receivable amount
	25,000
	Interest amount
	25,000*8% *90/365 = 493
	
	
	Journal entry
	
	Notes receivables Dr.
	25,000
	Equipment Cr.
	(25,000)
	(To record sale of equipment)
	
	
	
	Interest receivables Dr
	493
	Interest income Cr.
	(493)
	(To record interest income)
	
	
	
	Cash Dr. 
	25,493
	Notes receivables Cr.
	(25,000)
	Interest receivables Cr.
	(493)
	(To record interest and principal receipt)
	
Solution 2:
1. Straight line method:
Depreciation under straight line- Method = (cost of the asset – salvage value) / Estimated useful life of asset
Year 1 = (312,000 – 28,000) / 5 = 284,000 / 5 = 56,800 
Year 2 = (312,000 – 28,

Assignment Question(s): (20 Marks) Q1 a) Explain the methods that can estimate bad debt expenses in business. (Give numerical examples) (1 Mark) b.) Differentiate between Accounts receivable and Notes...

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