FFMA Spring Week 3 Flashcards
How do you calculate the profit or loss on the disposal of an asset?
Profit or Loss on Disposal = Sales Proceeds - Net Book Value. Net Book Value is calculated as Cost of Asset - Accumulated Depreciation.
What are the accounting entries for selling a van with an original cost of £20,000, accumulated depreciation of £8,000, and sales proceeds of £10,000?
Journal Entries: Debit Cash £10,000, Credit Vehicles (Cost) £20,000, Debit Accumulated Depreciation £8,000, Debit Loss on Disposal £2,000.
What is the impact on the financial statements after selling a van?
Balance Sheet: Removes the van and adds the cash received. Income Statement: Includes the annual depreciation expense and the loss on disposal.
Why do you debit accumulated depreciation when disposing of an asset?
Accumulated depreciation is debited to remove it from the books because it is a contra-asset account with a credit balance. This offsets the credit to the asset account, reflecting the removal of both the asset’s cost and its accumulated depreciation.
What are the journal entries for disposing of an asset with an original cost of £20,000, accumulated depreciation of £8,000, and sales proceeds of £10,000?
Journal Entries: Debit Cash £10,000, Debit Accumulated Depreciation £8,000, Debit Loss on Disposal £2,000, Credit Vehicles (Cost) £20,000.
Why is accumulated depreciation credited each year?
Accumulated depreciation is credited each year to record the total depreciation expense against an asset. It is a contra-asset account on the balance sheet that reduces the book value of the asset. The corresponding debit is made to the depreciation expense account on the income statement.
What are the journal entries for recording annual depreciation of £4,000?
Debit Depreciation Expense: £4,000. Credit Accumulated Depreciation: £4,000.
Why do we debit accumulated depreciation when disposing of an asset?
We debit accumulated depreciation to remove the total depreciation recorded against the asset from the balance sheet. This is necessary to offset the credit to the asset account, effectively removing the asset and its related depreciation from the books.
How is interest expense calculated and recorded?
Calculation: Interest Expense = Loan Balance * Interest Rate. Recording: Debit Interest Expense, Credit Cash for payments made. If interest is unpaid at year-end, debit Interest Expense and credit Interest Payable for the accrued amount.
What is the impact of interest expense and accruals on financial statements?
Income Statement: Total interest expense is recorded. Balance Sheet: Unpaid interest is recorded as Interest Payable.
How is corporation tax calculated and recorded?
Calculation: Tax Expense = Profit * Tax Rate. Recording: Debit Tax Expense and Credit Tax Payable for the accrued tax amount at year-end.
What is the impact of corporation tax on financial statements?
Income Statement: Tax expense is recorded. Balance Sheet: Tax payable is recorded as a current liability.
How are dividends recorded according to the Companies Act 2006?
Dividends are proposed by directors and must be approved by shareholders. Only distributable profits can be paid as dividends. Dividends are recorded in financial statements after approval.
How are dividends calculated?
Dividends are usually expressed in pence per share. Total dividend = dividend per share * number of shares. Alternatively, it can be a percentage of the nominal value of shares.
How are dividends treated in financial statements?
Dividends are not expenses. They are distributions of profit deducted from retained earnings. They do not appear in the statement of profit or loss. If approved and unpaid by year-end, they are recorded as a dividend payable liability.
