Question

Question:

Need to identify accounting issues within the following 2 scenarios and how they should be handled:

Scenario 1:

At HLJ's 2017 year-end, the company held an inventory of 300 ounces of gold having a purchase cost of $1,150 U.S. per ounce (which at an exchange rate of $1 Canadian = $0.9388 U.S. resulted in a cost of $1,225 per ounce Canadian). At July 31, 2017, the market value for gold was $1,130 U.S. per ounce (also $1,130 Canadian). As a result, for fiscal 2017 year- end, gold inventory was written down by $28,500.

Currently, gold has increased in value to $1,305 U.S. per ounce ($1,350 Canadian). 200 ounces of the gold in the 2017 inventory will still be held by HLJ at its fiscal 2018 year-end.

Scenario 2:

In August 2017, HLJ initiated a new promotional program called "Engagement Embarrassment Insurance" (EEI) intended for individuals who purchase surprise diamond engagement rings for their prospective partners. If the marriage proposal is not accepted (or for any other reason within three months of purchase), HLJ will repurchase the ring from the customer.

HLJ will refund the original sales price of the diamond portion of the ring (on average $2,000) but will not provide a refund for the gold component of the ring (which averages $1,000) as HLJ considers the ring's band and setting to be custom-made for the customer, whereas each diamond has a grading certificate to ensure its individual features. The average cost of gold is $600, and $1,200 for diamond.

Since beginning the EEI program, the company has had, on average, 60 customers in the potential repurchase period at any point in time. Total number of rings sold under this program in fiscal 2018 is expected to be 240.

Useful information to know: The company has no debt other than accounts payable, the owners take a salary of $150,000 to $200,000 each. The company's pre tax income has, over the last few years been around $250,000. Their year end is July 31. They expect their sales to increase to $6 million in 2018, from last year's $5.4 million. The company uses ASPE, and taxes payable method of accounting.

Answer 1

solution :

given that Rundle Freight Company owns a truck that cost $33,000.

also given that Currently, the truck’s book value is $27,000, and its expected remaining useful life is five years

mentioned in gi ven indormation that

Rundle has the opportunity to purchase for $28,000 a replacement truck that is extremely fuel efficient. Fuel cost for the old truck is expected to be $7,000 per year more than fuel cost for the new truck.

some other given information The old truck is paid for but, in spite of being in good condition, can be sold for only $16,000.

Calculating the total relevant costs:

	retaining truck	replacing truck
cost of the new truck	$-	$28000
additional fuel cost (5*7000)	$35000	$-
oppurtunity cost	$16000	$-
total cost	$51000	$28000

final decision of retaining old truck :

the purchase cost of ol;d truck and book value are irrelevant

they are sunk cost

therefore they should not be considered

the comparision cost of replacing and retaining truck are given above

from the above table

the company should replace the old truck as it would cost $28000 in replacement as against the cost of reraining truck of $51000