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Prepare the Fixed/Transitional Asset Note

The following balances appeared in the Balance Sheet section of the ledger before any adjustments:

Adjustments and Additional Information:
1. Phuml took stock of dresses for her personal use at cost price, R4 200. This has not been recorded.
2. A stock count at the year-end revealed dresses of R170 000 on hand.
3. A computer was purchased on credit on 31 December 20.4 for R8 000. This has not been recorded. The amount due will be paid in March 20.5.

Provide for depreciation as follows:
- On vehicles at [tex]$20\%$[/tex] p.a. according to the diminishing balance method.
- On equipment at [tex]$15\%$[/tex] p.a. on cost (fixed installment method).

Note: The new equipment purchased on 31 December 20.4 must be taken into consideration.



Answer :

GinnyAnswer
Certainly! Let's analyze and prepare the Fixed/Tangible Asset Note, step-by-step, taking into consideration the given adjustments and additional information.

### Step-by-Step Solution:

#### 1. Stock Adjustment for Personal Use:
Phuml took stock of dresses for personal use which costs R4,200:
- This is an adjustment to decrease inventory by R4,200.

#### 2. Year-End Stock Count:
An inventory count at year-end showed a balance of R170,000 of dresses on hand:
- This amount reflects the inventory balance after the adjustments.

#### 3. New Computer on Credit:
A computer costing R8,000 was purchased on credit on 31 December 20X4. This needs to be added to equipment cost and recorded as a liability to be paid later:
- Increase in equipment cost: R8,000

#### 4. Depreciation on Vehicles:
Depreciation on vehicles is provided at 20% per annum using the diminishing balance method. Calculation is based on the cost minus accumulated depreciation:
- Initial cost of vehicles: R50,000
- Accumulated depreciation: R10,000
- Book value before depreciation: R50,000 - R10,000 = R40,000
- Depreciation for the year: 20% of R40,000 = R8,000
- New accumulated depreciation on vehicles: R10,000 + R8,000 = R18,000

#### 5. Depreciation on Equipment:
Depreciation on equipment is provided at 15% per annum using the fixed installment method. The new computer purchased on 31 December should also be taken into account but is depreciated only for the period it was in use:
- Initial cost of equipment: R30,000
- Cost of new computer: R8,000
- Total cost of equipment after purchase: R30,000 + R8,000 = R38,000
- Annual depreciation for existing equipment: 15% of R30,000 = R4,500
- Annual depreciation for new computer: 15% of R8,000 (considering full year) = R1,200
- Total depreciation on equipment: R4,500 + R1,200 = R5,700
- New accumulated depreciation on equipment: R7,500 + R5,700 = R13,200

### Summary of Adjustments and Calculations:

#### Inventory Adjustments:
- Beginning inventory: (adjustment not provided, accord it is balance before adjustments)
- Less: Personal use stock: -R4,200
- Year-end stock count: R170,000

#### Fixed/Tangible Assets Adjustments:

1. Vehicles:
- Cost: R50,000
- Accumulated Depreciation (beginning): R10,000
- Depreciation for the year: R8,000 (diminishing balance method)
- New Accumulated Depreciation: R18,000
- Book Value: R50,000 - R18,000 = R32,000

2. Equipment:
- Cost: R30,000
- Add: New computer purchase: R8,000
- Total Equipment Cost: R38,000
- Accumulated Depreciation (beginning): R7,500
- Depreciation for the year: R5,700 (fixed installment method)
- New Accumulated Depreciation: R13,200
- Book Value: R38,000 - R13,200 = R24,800

### Final Note on Fixed/Tangible Assets in Balance Sheet:
- Vehicles:
- Cost: R50,000
- Less: Accumulated Depreciation: R18,000
- Book Value: R32,000

- Equipment:
- Cost: R38,000
- Less: Accumulated Depreciation: R13,200
- Book Value: R24,800

### Net Impact on Inventory:
- Inventory: R170,000 (including adjustments for personal use stock and year-end stock count)

By following this detailed approach, you can ensure all adjustments are accounted for correctly in the financial statements.

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