Question

1] On 1 January 2018 Panorama Ltd acquired equipment for $22 000, net of GST. The estimated residual value for the equipment is zero. Depreciation is calculated at 10% p.a) on the diminishing-balance basis. The depreciation expense for the year ended 31 December 2020 is:

a

$1604.

b

$1782.

c

$1980.

d

$2200.

2] The correct entry to record the purchase of a motor vehicle for $40 000 cash, plus 10% GST is which of the following?

a	DR Motor vehicles $44 000; CR Bank $44 000.

b	DR Motor vehicles $40 000; DR GST receivable $4000; CR Bank $44 000.

c	DR Motor vehicles $44 000; CR Bank $40 000; CR GST collected $4000.

d	DR Motor vehicles $36 000; DR GST receivable $4000; CR Bank $40 000.

3] After writing off bad debts of $1800 the allowance for doubtful debts account balance was $600 credit. What is the correct general journal entry to record an adjustment to bring the allowance for doubtful debts to 10% of accounts receivable of $22 000?

a	DR Bad debts expense $1600; CR Allowance for doubtful debts $1600

b	DR Allowance for doubtful debts $1600; CR Bad debts expense $1600

c	DR Bad debts expense $1600; CR Accounts receivable $1600

d	DR Allowance for doubtful debts $1600; CR Accounts receivable $1600

Answer 1

1) On 1 st January 2018,

Cost of EQUIPMENT = $22,000

Residual value = 0

Depreciation = 10%

Method : Diminishing Balance Method

On 31 st December 2018 ,

Depreciation = $22,000 *10% = $ 2,200

Book Value on 31 st December 2018 = 19,800

On 31 st December 2019 ,

Depreciation = $19,800 *10% = $ 1,980

Book Value on 31 st December 2018 = 17,820

On 31 st December 2020 ,

Depreciation = $17,820 *10% = $ 1,782

Book Value on 31 st December 2018 = 16,038

Option b.$1,782

2) Option B
DR Motor vehicles $40 000; DR GST receivable $4000; CR Bank $44 000

As per modern rules of Accounting,

Increase in asset - Debit

Asset will be increased to the extent of Purchase price ,GST will be recorded to the extent of payment,

wherein bank will be debited for whole amount.

3) Option C

DR Allowance for doubtful debts $1600; CR Accounts receivable $1600.

After adjusting the $ 600 credit in Doubtful debts, Balance provision of $1,600 is created

As per modern rules of Accounting,

Decrease in asset - Credit

Asset decreased to the extent of Doubtful debts created and accounts receiveable reduced.