Samzuu Company Limited manufactures bicycle tyres. For the year ended 31/12/2019 the company’s cost data is as set below:

                                                     1/1/2019    31/12/2019

Inventories :

GHS GHS

Finished goods - -

Raw materials..................            45,300        30,000

Work in process...............          18,000         10,000

Non-current assets acquired during the year:

Motor Van at historical value .............................15,000

Land & Building at historical value ....................70,000

Plant and equipment at historical value ..........420,000

During the year the company embarked on the following transactions:
......................................................................................Ghc
Direct labor cost.................................................. .......38,000
Purchase of raw materials........................................22, 000
Rent of special equipment for production............... 8,000
Indirect labor......................................................... ......5,000
Direct production expense ........................................3,000
Carriage inwards ..........................................................1,200
Carriage outward .........................................................2,000
Raw Material Returns .................................................4,300
Sales commissions................................................ .....2,100
Utilities................................................... .......................8,000
Maintenance of plant and equipment........................ 2,000
Supplies, factory................................................... .......1,700

Advertising expense .......................................... 4,000

Additional information.

a) The company uses plant & equipment at both the factory and the administration as such expenses on these assets is apportioned 80% to factory and 20% to admin. Repairs and maintenance prepaid is Ghc1, 000 as at end of year.

b) Manufactured goods are transferred to the trading department at the cost of production

c) Utilities are used at the factory and at the administration in the ratio 2/3 goes to the factory and the 1/3 to administration. For the year ended there is Ghc 2,000 accrued on these utilities

d) The company’s policy is to depreciate Plant & Machinery at 20% and Motor Van 15% per annum

e) Sales is twice the cost of sales

Required

i) Prepare the Production Account for the year ended 31/12/2016 (10 marks)

ii) Prepare the income statement of the company for the year. (8 marks)

iii) Outline two reasons why companies must provide for Depreciation of Non-current Assets.

Answer rating: 100% (QA)

iii Reason for providing depreciation for Noncurrent assets are used for facto... View the full answer