Zoe¨ started up an independent fast food outlet at 1 January 2012, trading as Zoe¨’s Snacks. Her accountant advised her that she should depreciate her machinery and fixtures over a period of between 4...

Zoe¨ started up an independent fast food outlet at 1 January 2012, trading as Zoe¨’s Snacks. Her accountant advised her that she should depreciate her machinery and fixtures over a period of between 4 and 7 years on a straight-line basis. Zoe¨, who is a keen amateur accountant, decided to prepare her income statement and statement of financial position on the basis of straight-line depreciation over a 4-year period. However, she is also interested to see what difference it would make to her profits if she depreciated machinery over the maximum advisable period of 7 years.

Her books show the following list of balances (before any adjustment for depreciation) at 31 December 2012:


Required:


a) Prepare the income statement and statement of financial position for Zoe¨’s Snacks at 31 December 2012 making adjustments for depreciation of machinery and fixtures on the basis of the straight-line method of depreciation over 4 years, with an estimated residual value of nil.


b) Calculate the increase or decrease in net profit which would arise if Zoe¨ depreciated the machinery and fixtures on the basis of the straight-line method of depreciation over 7 years.


c) Calculate the net profit margin on the basis of (i) depreciating the non-current assets over 4 years; and, (ii) depreciating the non-current assets over 7 years.




May 26, 2022
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