FATIMAALASMRI_ACCT201_2

College of Administrative and Financial Sciences
Assignment 2
Deadline: 04/05/ 2024 @ 23:59
Student’s Name:
Student’s ID Number:
CRN:
Course Name: Financial Accounting
Course Code: ACCT 201
Semester: 2
Academic Year: 2023- 24
For Instructor’s Use only
Instructor’s Name:
Students’ Grade: …… /15
Level of Marks: High/Middle/Low
nstructions – PLEASE READ THEM CAREFULLY
• The Assignment must be submitted on Blackboard (WORD format only) via allocated
folder.
• Assignments submitted through email will not be accepted.
• Students are advised to make their work clear and well presented, marks may be
reduced for poor presentation. This includes filling your information on the cover page.
• Students must mention question number clearly in their answer.
• Late submission will NOT be accepted.
• Avoid plagiarism, the work should be in your own words, copying from students or
other resources without proper referencing will result in ZERO marks. No exceptions.
• All answered must be typed using Times New Roman (size 12, double-spaced) font.
No pictures containing text will be accepted and will be considered plagiarism).
•
Submissions without this cover page will NOT be accepted.
College of Administrative and Financial Sciences
Assignment Question(s): Total Marks 15
Q1. M Corp. makes a loan to N Co. and receives in exchange a three-year, SR 15,000 note
bearing interest at 10 percent annually. The market rate of interest for a note of similar risk is
12 percent.
Required: (4 Marks)
a. How does M Corp record the receipt of the note using present value?
b. Imagine the same note at zero bearing and pass journal entries using present value.
(Note: PV of Interest at 12% is 2.40183
and PV of Principal at 12% is
.71178)
Answer:
Q2. XYZ Company’s record of transactions for the month of September was as follows.
Date
Sep 1
Sep 4
Sep 11
Sep 18
Sep 26
Sep 30
Total
Purchase
Quantity
Unit Price
Date
(Balance on $4.00
Sep 5
hand) 100
300
4.50
Sep 12
200
5.00
Sep 27
200
5.25
Sep 28
500
5.50
200
5.75
1,500
Total units (ending inventory) 350
Sales
Units
200
150
600
200
1,150
Required: (4 Marks)
Compute the ending inventory and COGS at September 30 on each of the following on
periodic bases.
1. FIFO
2. WA
College of Administrative and Financial Sciences
Answer:
Q3 IFRS requires capitalizing actual interest (with modification) Consistent with historical
cost. Capitalization considers three items:
1. Qualifying assets.
2. Capitalization period.
3. Amount to capitalize.
Explain the above with numerical examples. (4 Marks)
Answer:
Q4 A long-lived tangible asset is impaired when a company is not able to recover the asset’s
carrying amount either through using it or by selling it. The management to identify whether
the asset has impairment or no impairment conducts an impairment test.
Explain how the impairment test conducted in both situations with numerical examples. (3
Mark)
Answer:
Q1
a. Lower of cost or net realizable value (LCNRV) is a valuation method for assets that follows
conservatism accounting principle. The principle states that any assets must not be
overstated nor any liabilities must not be understated. By applying LCNRV, entities should
record the asset less any write down, it may be allowance for purchase returns, to arrive at
the net realizable value.
b.
Product
A
B
C
D
Original
Cost
SAR 25
SAR 42
SAR 120
SAR 18
Expected Selling
Price
SAR 40
SAR 58
SAR 150
SAR 26
NRV*
LCNRV
SAR 30
SAR 38
SAR 110
SAR 21
SAR 25
SAR 38
SAR 110
SAR 18
Completion Cost
NRV
SAR 10
SAR 20
SAR 40
SAR 5
SAR 30
SAR 38
SAR 110
SAR 21
Q2
a.
1. Determine which assets qualify for capitalization of interest.
2. Determination of the capitalization period.
3. Computation of the weighted average accumulated expenditures.
4. Compute the actual and avoidable interest.
5. Capitalize the lesser of avoidable interest or actual.
b.
Month
Amount
Weight
1st January
1st March
1st June
1st September
1st December
Total
500,000
400,000
350,000
500,000
250,000
12/12
10/12
7/12
4/12
1/12
Weighted
Expenditures
500,000.00
333,333.33
204,166.67
166,666.67
20,833.33
1,225,000
Q3
Long-lived tangible assets are classified as non-current assets. It has a lifespan of more than one
year which is why it is important to evaluate the asset’s valuation every end of the period for
financial reporting purposes. Depreciations, impairments, and depletions are considered as contra
– asset accounts which decrease the value of the asset as it deteriorates over time.
The examples for depreciation are mainly properties and equipment such as buildings and trucks.
On the other hand, impairment occur if the recoverable amount is lower than the historical amount.
Lastly, depletion involves usually mining ores.
Depreciation: ABC Co. has a truck which amounts to SAR 85,000 and has a life of 10 years.
The company uses straight line method for depreciation purposes.
At the end of the period, entry will be:
Depreciation Expense
Accumulated Depreciation
(SAR 85,000 / 10 years)
SAR 8,500
SAR 8,500
Impairment: On the 5th year of ABC Co. operations, the company estimates that the truck has
a recoverable amount of SAR 30,000
Historical Cost
SAR 42,500
(SAR 85,000 x 5/10)
Recoverable Amount
SAR 30,000
Impairment Loss
SAR 12,500
Depletion: ABC Co. decided to acquire a plant with mineral deposit for SAR 500,000. The plant
has a salvage value of SAR 50,000 and development cost of SAR 100,000. It is estimated that
10,000 tons will be extracted. During the period 5,000 tons were extracted.
Principal Cost
SAR 500,000
Development Cost
100,000
Lees: Salvage Value
(50,000)
Depletable cost
SAR 550,000
Depletion Rate
SAR 55
(SAR 550,000 / 10,000 tons)
Depletion Expense for the period
(SAR 55 x 5,000 tons)
SAR 275,000
Q4
Date
Debit
12/31/2010
Amortization Expense
Credit
SAR
1,875
Cash
SAR
1,875
(SAR 15,000 / 8 years)
12/31/2011
Amortization Expense
SAR
1,875
Cash
SAR
1,875
(SAR 15,000 – SAR 1,875) / 7 years)
Amount
Historical Cost
SAR 11,250
(SAR 15,000 – SAR 1,875 – SAR 1,875)
Recoverable Cost
SAR 12,000
Firoz did not meet any impairment loss since the recoverable amount is higher than the
historical cost. Thus, no need for any entry relating to impairment.
Q5
PV Factor
Principal
Interest
500,000
20,000
0.74409
8.5302
Proceeds
Principal
Premium
Present Value of
Bonds
372,045
170,604
542,649
500,000
42,649
Entry
1/1/2021
Cash
SAR 542,649
Bonds Payable
Premium on Bonds
SAR 500,000
42,649