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Accounting

Exercices

Exercice 1

The Company LDS purchased office furniture on 18 June of year "N" for $7200 including tax, the VAT rate is 20%. The company uses linear amortization. The useful life of the asset is five years. The financial year-end is the end of December.


Step 1: Price Before Tax

Price Excluding Taxes = Price Including Taxes1+VAT Rate\frac{\text{Price Including Taxes}}{1+\text{VAT Rate}}

Price Including Taxes = $7200

VAT Rate = 20%

Price Excluding Taxes = $72001+20%\frac{\$7200}{1+20\%} = $6000

Step 2: Rate

Linear Rate = 1Useful Life\frac{1}{\text{Useful Life}}

Useful Life = 5 years

Rate = 15\frac{1}{5} = 0.2 = 20%

Step 3: Amortization

Amortization = Price Excluding Taxes×Rate\text{Price Excluding Taxes} \times \text{Rate}

Amortization = $6000×20%=$60005\$6000 \times 20\% = \frac{\$6000}{5} = $1200

Step 4: Used days

Used days = 360−Days from beginning of the year to purchase date360 - \text{Days from beginning of the year to purchase date}

Since we bought the furniture on 18 June, we have to calculate the amortization for the first year.

Used days = 360−(30×6+18)=360 - (30 \times 6 + 18) = 192 days

Step 5: Amortization for First Year

Amortization for First Year = Amortization360×Used days\frac{\text{Amortization}}{360} \times \text{Used days}

Amortization for First Year = $1200360×192=\frac{\$1200}{360} \times 192 = $640

Step 6: Amortization Table

Amortization Table Image Amortization Table Image

Step 7: Recording for 1st Year

Account for Depreciation, Amortization and Provision = 68

Account for amortization of fixed assets = 28

Amortization Recording Image Amortization Recording Image

Exercice 2

Invoice N°112 19/04/2023

Industrial tools: $35 000

VAT 20% : $7 000

Net to be paid : $42 000

The equipment will be commissioned on 25 May. The depreciation period is 7 years (in degressive mode).

Step 1: Price Before Tax

The price before tax is already provided as it is $35 000. We can make sure by calculating it:

Price Excluding Taxes = Price Including Taxes1+VAT Rate\frac{\text{Price Including Taxes}}{1+\text{VAT Rate}}

Price Excluding Taxes = $420001+20%\frac{\$42 000}{1+20\%} = $35 000

Step 2: Rates

Linear Rate = 1Useful Life\frac{1}{\text{Useful Life}}

Degressive Annuity rate = RL×Original Coefficient=100%Duration of use×Original CoefficientR_L \times \text{Original Coefficient} = \frac{100\%}{\text{Duration of use}} \times \text{Original Coefficient}

DurationOriginal Coefficient
Between 3 and 4 years1.25
Between 5 and 6 years1.75
More than 6 years2.25

Linear Rate = 17\frac{1}{7} = 0.14 = 14%

Degressive Annuity rate = 100%7×2.25=\frac{100\%}{7} \times 2.25 = 32.14%

Step 3: Used months

Used months = 12−Months from beginning of the year to commissioning date12 - \text{Months from beginning of the year to commissioning date}

Since we commissioned the equipment on 25 May, we have to calculate the amortization for the first year.

Used months = 12−4=12 - 4 = 8 months

Step 4: Amortization for First Year

Amortization for First Year = Price Excluding Taxes×Degressive Rate×Used months12\text{Price Excluding Taxes} \times \text{Degressive Rate} \times \frac{\text{Used months}}{12}

Amortization for First Year = $35000×32.14%×812=\$35 000 \times 32.14\% \times \frac{8}{12} = $7499,33

Step 5: Amortization Table

Compared Linear Annuity rate = 100%Remaining years=100%N - Current year=RCL\frac{100\%}{\text{Remaining years}} = \frac{100\%}{\text{N - \text{Current year}}} = R_{CL}

Amortization Degressive Table Image Amortization Degressive Table Image

Step 6: Recording for 1st Year

Account for Depreciation, Amortization and Provision = 68

Account for amortization of fixed assets = 28

Amortization Recording Image Amortization Recording Image

Exercice 3

  • Garel: amount of the receivable 8,820 $ including tax (VAT 20%). We expect to recover 70% of the debt.

  • Pépin: amount of the receivable 6,024 $ including tax (VAT 20%). Evaluation of the probable loss: 40%.

Step 1: Amount of the Receivable

Amount of the Receivable = Amount of the Receivable Including Taxes1+VAT Rate\frac{\text{Amount of the Receivable Including Taxes}}{1+\text{VAT Rate}}

Amount of the Receivable for Garel = $88201+20%\frac{\$8 820}{1+20\%} = $7 350

Amount of the Receivable for Pepin = $60241+20%\frac{\$6 024}{1+20\%} = $5 020

Step 2: Provision

Provision = Amount of the Receivable×Percentage of the possible loss\text{Amount of the Receivable} \times \text{Percentage of the possible loss}

For Garel, the provision is the opposite of what we can recover, thus: 30%. (100% - 70%)

Provision for Garel = $7350×30%=\$7 350 \times 30\% = $2 205

For Pepin, the provision is the percentage of the possible loss, thus: 40%.

Provision for Pepin = $5020×40%=\$5 020 \times 40\% = $2 008

Step 3: Recording

Account for Depreciation, Amortization and Provision = 68

Account for provision for receivables = 49

Provision Recording Image Provision Recording Image

Exercice 4

| Customer | Amount incl. VAT | Amount excl. VAT | Existing Provision (%) | Payment in N | Observation | | -------- | ---------------- | ---------------- | ---------------------- | ------------ | --------------- | | A | 10080 $ | 8400 $ | 30% | 5382 $ | Last payment | | B | 3120 $ | 2600 $ | 15% | 598 $ | Increase to 30% | | C | 6420 $ | 5350 $ | 25% | 3100 $ | Last payment | | D | 4440 $ | 3700 $ | 40% | 4440 $ | - | | E | 9000 $ | 7500 $ | 35% | 4100 $ | Reduce to 20% |

Provision Empty Image Provision Empty Image

Customer A

Step 1: Amount After Payment

Amount After Payment = Amount of the Receivable Including Taxes−Payment\text{Amount of the Receivable Including Taxes} - \text{Payment}

Amount After Payment for Customer A = $10080−$5382=\$10 080 - \$5 382 = $4 698

Step 2: Amount excluding VAT

Amount excluding VAT = Amount After Payment1+VAT Rate\frac{\text{Amount After Payment}}{1+\text{VAT Rate}}

Amount excluding VAT for Customer A = $46981+20%=\frac{\$4 698}{1+20\%} = $3 915

Step 3: Existing Provision

Existing Provision = Amount excluding VAT×Percentage of the existing provision\text{Amount excluding VAT} \times \text{Percentage of the existing provision}

Existing Provision for Customer A = $8400×30%=\$8400 \times 30\% = $2 520

Step 4: Loss

Since it is the last payment, the loss is the remaining amount after payment (excl. taxes) that the customer will never pay back.

Loss = $3 915

Step 5: Loss VAT

Loss VAT = Loss×VAT Rate\text{Loss} \times \text{VAT Rate}

Loss VAT for Customer A = $3915×20%=\$3 915 \times 20\% = $783

Step 6: Provision Needed

Since we declared a loss, the provision needed is now 0.

Step 7: Depreciation or Reversal

The existing provision is $2 520 and the provision needed is 0. Thus, we need to reverse the provision (needed < existing).

Step 8: Table

Provision 1 Image Provision 1 Image

Customer B

Step 1: Amount After Payment

Amount After Payment = Amount of the Receivable Including Taxes−Payment\text{Amount of the Receivable Including Taxes} - \text{Payment}

Amount After Payment for Customer B = $3120−$598=\$3 120 - \$598 = $2 522

Step 2: Amount excluding VAT

Amount excluding VAT = Amount After Payment1+VAT Rate\frac{\text{Amount After Payment}}{1+\text{VAT Rate}}

Amount excluding VAT for Customer B = $25221+20%=\frac{\$2 522}{1+20\%} = $2 101,67

Step 3: Existing Provision

Existing Provision = Amount excluding VAT×Percentage of the existing provision\text{Amount excluding VAT} \times \text{Percentage of the existing provision}

Existing Provision for Customer B = $2600×15%=\$2 600 \times 15\% = $390

Step 4: Loss

Since it is not the last payment, there is no loss.

Step 5: Provision Needed

Provision Needed = Amount excluding VAT×Percentage of the updated provision\text{Amount excluding VAT} \times \text{Percentage of the updated provision}

Provision Needed for Customer B = $2101,67×30%=\$2 101,67 \times 30\% = $630,50

Step 6: Depreciation or Reversal

The existing provision is $390 and the provision needed is $630,50. Thus, we need to depreciate the provision (needed > existing).

Step 7: Table

Provision 2 Image Provision 2 Image

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Exercice 1Step 1: Price Before TaxStep 2: RateStep 3: AmortizationStep 4: Used daysStep 5: Amortization for First YearStep 6: Amortization TableStep 7: Recording for 1st YearExercice 2Step 1: Price Before TaxStep 2: RatesStep 3: Used monthsStep 4: Amortization for First YearStep 5: Amortization TableStep 6: Recording for 1st YearExercice 3Step 1: Amount of the ReceivableStep 2: ProvisionStep 3: RecordingExercice 4Customer AStep 1: Amount After PaymentStep 2: Amount excluding VATStep 3: Existing ProvisionStep 4: LossStep 5: Loss VATStep 6: Provision NeededStep 7: Depreciation or ReversalStep 8: TableCustomer BStep 1: Amount After PaymentStep 2: Amount excluding VATStep 3: Existing ProvisionStep 4: LossStep 5: Provision NeededStep 6: Depreciation or ReversalStep 7: Table