Q.

a. Perpetual inventory System

Date Accounts Debit Credit

Jan 3 Cash $30000

Sales Revenue $30000

Cost of Goods Sold $20000

Merchandise inventory $20000

Jan 7 Merchandise Inventory $16000

Accounts Payable - Yamaha Co $16000

b.  Compute the balance in the Inventory account.

balance in the Inventory account = Opening balance + Purchases - Cost of Goods Sold

Balance in the Inventory account = 55000 + 16000 - 20000 = $51000

c. Periodic inventory system

Date Accounts Debit Credit

Jan 3 Cash $30000

Sales Revenue $30000

Jan 7 Purchases $16000

Accounts Payable - Yamaha Co $16000

d. Cost of goods Sold = Opening inventory + Purchase - Closing Inventory

Cost of goods Sold = 55000 + 16000 - 51000

Cost of goods Sold = $20000

e. Gross Profit = Sales - COGS = $30000 - 20000 = $10000

Q. 3

Depreciation expense = (Asset cost – Residual Value) / Useful life of the asset
 (22000-2000) =20000/5= 4000

Depreciation Scheduled (Straight Line Method)

Year Book Value (Remaining Depreciation
0 amount)
22000 4000
1 18000 4000
2 14000 4000
3 10000 4000
4 6000 4000
5 2000 4000

Depreciation Scheduled Income statement & Balance sheet

Income statement Balance Sheet

31-Dec-15 Depreciation Plant and Equipment 0 31-Dec-15 Plant and equipments 20,000

Income statement Balance Sheet

31-Dec-16 Dep exp of P and E 31-Dec-16 Plant and equipments 20000 -4000 16,000

Income statement Balance Sheet

31-Dec-17 Dep exp of P and E 31-Dec-17 Plant and equipments 20,000 -8000 12,000

Income statement Balance Sheet

31-Dec-18 Dep exp of P and E 31-Dec-18 Plant and equipments 20000 -12000 8,000

Income statement Balance Sheet

31-Dec-19 Dep exp of P and E 31-Dec-19 Plant and equipments 20,000 -16000 4,000

Income statement Balance Sheet

31-Dec-20 Dep exp of P and E 31-Dec-20 Plant and equipments 20,000 -20,000 0

Record transactions of five years for depreciation S and G

Q. 2
 A). How much you will pay each year for the rest of 05 years
Each year payment= {(3,500,000-500,000) (300,000/5=600,000)}
=300,000= 10% each year = 900000

PVA = Present Value of Annuity 3,000,000

PMT = Annuity Payment 7913924.44
r = Interest rate 10%
t= number of years 5
PVAIF 3.8
B). Loan Amortization Scheduled:

Monthly Interest ( Principal Remaining

Date
Payment per month) Repayment Amount
PVA 3,000,000 3,000,000
PMT 791392.44 1 791392.44 300,000 491,392.44 2,508,607.56
r 10% 2 791392.44 250,861 540,531.69 1,968,075.87
t 5 3 791392.44 196,808 594,584.86 1,373,491.02
PVAIF 3.79 4 791392.44 137,349 654,043.34 719,447.67
5 791392.44 71,945 719,447.67 0.00

Q. 4
a. Increase. Paying current liabilities reduces current assets and current liabilities by the same
dollar amount. As the current ratio exceeds 1 to 1, however, reducing both current assets and
current liabilities by an equal amount will increase the ratio.

1. Decrease. Purchasing inventory on account increases current assets and current liabilities by
the same amount. This tends to force the current ratio closer to 1 to 1 which, for Azam group of
business,would be a decline. In essence, purchasing inventory on account has the opposite effect
of paying current liabilities, discussed in part

2. Decrease. Offering customers, a cash discount to speed up the collection of accounts

receivable would replace accounts receivable with a somewhat smaller amount of cash. Cash on
hand would increase. However, as both cash and accounts receivable are current assets, total
current assets and the current ratio would decrease.

(b) One means of improving the current ratio is to increase current assets without increasing
current liabilities. This could be done by selling noncurrent assets, by borrowing cash on a long-
term basis, or by the owners investing cash in the business. The increase in the current ratio
would be magnified if the proceeds from these transactions were used to reduce current
liabilities.

A second legitimate strategy is to seize any opportunities to sell existing current assets at prices
higher than their carrying value in the accounting records. Selling inventory at a price above
cost, for example, replaces the inventory (valued at cost) with either cash or accounts receivable
in the amount of the sales price. Therefore, a year-end “clearance sale” may help improve the
current ratio.

In part a (2) we stated that purchasing inventory on account would reduce the current ratio. The
reverse strategy, not making normal purchases to replace sold merchandise, increases the current
ratio, because current assets and current liabilities both fall beneath normal levels.

Also, delaying until after year-end any routine transactions that reduce current assets, such as
purchases of equipment or expenditures for repairs or maintenance, will improve the current
ratio.

Q. 1
Cash flow from operation activities

Sales 1000,000

Increased account receivable -30000

Cash 970,000

Interest income 10,000

Increased in accrued interest receivable 1000
Interest received 11000
Dividend 5000
Cash provided 986,000

Cost of good sold 550,000