Question#1: Merchant & Co bought machine at a cost of Rs.

200,000 on September 1,1999 on

credit from Hamid brothers. Paid installation cost Rs.30,000. During installation certain part of
machine damage and repaired at a cost of Rs.5000.Estimated life of the machine is 5 years and
scrap value is Rs.40,000.

Required:

a. Compute Depreciation for 3 years ( 1999 -2001 ) if depreciation is charged using BV

method @ 25%.
b. Prepare partial balance sheet as on 31st December, 1999, 2000 and 2001.
c. Suppose if the machine is sold on 31st Decemeber 2000 at a price of Rs. 120,000. Pass
necessary journal entry to record disposal.
d. Suppose if the machine is exchnged on 31st October 2001 with a new machine costing
Rs.600,000. Trade-in-allowance of old machine was Rs. 180,000. Pass necessary journal
entry to record the exchange.

Question#2

Star Company follows the income statement approach to estimating uncollectible account
expense. For several years the company has computed the charge to uncollectible accounts
expense as 1% of net sales. All sales are made on credit. The following data appeared in the
accounting records at 1st Jan 2001,

Accounts Receivable Rs.500,000

Allowance for bad debts Rs.5,000
Data for the year
S. No. 2001 2002 2003
A Sales ( 20% cash ) 10,00,000 12,00,000 15,00,000
B Sales return 70,000 80,000 100,000
C Sales Discount
D Cash collection from A/R 600,000 700,000 850,000
E Customer account written off 10,000 15,000 25,000
F Previously written off A/R 7,000 12,000 15,000
recovered
REQUIRED:
(A) Pass journal entries ( A – E )
(B) Pass adjusting entry to record bad debts for 2001 and 2002 under current policy of Star Company.
(C) Pass adjusting entry to record bad debts for 2001 and 2002 by balance sheet approach ( 5 %