Accounting 2 - Vitaem Company, located in Spain, produces

Accounting 2

BBVTASK

Each question in an excel spreadsheet of the same file.

Question 1Vitaem Company, located in Spain, produces, and distributes Kombucha.

Kombucha is a natural fermented drink that is obtained by mixing green tea leaves with water and cane sugar, to a bacterium´s colony and yeasts.

Kombucha has a lot of growth potential, and the company anticipates that if it invests in machinery, it will be able to face a 40% growth in turnover.

For this reason, the Chief Financial Officer together with the Chief Executive Officer make the decision to buy a new machine for the tea cooking automation computer control and temperatures control in the fermentation tanks, and maturation.

They organize a visit to CHINA with a very important manufacturer of this type of machinery, EFICROA.

Finally, on 15th November 2021, the company VITAEM signs the contract for the purchase of the machine with the supplier of fixed assets.

The purchase price of the machine is 250.000 euros.

On 1st January 2022 the machine arrives at Vitaem warehouse for its installation and assembly with the invoice issued by the vendor (250.000 euros)

Vitaem has also incurred in the following additional costs related to the machine:

· Invoice number 1 dated December 25th: maritime transport from China to Barcelona. Amount 3.000 euros

· Invoice number 2 dated December 28th: transport insurance concept. Amount 1.000 euros

· Invoice number 3 dated 31st December: for customs procedures and unloading at Barcelona´s port and transport from Barcelona´s port to VITAEM facilities. Amount: 400 euros

Due to the complexity of the machine, it needs an installation and assembly. For this service Vitaem contracts the services to the IMM Corporation for an amount of 25.000 euros.

The maintenance for the first year is 2.370 euros.

The company is considering whether to determine annual depreciation using the straight-line method or the declining method at 150 percent of the straight – line rate. Vitaem expects to use the equipment for 10 years, at the end of which it will have an estimated salvage value of 4.000 euros.

In mid January 2021, the Board of Directors approved the 2021 investment budget. It included a truck´s purchase for the delivery in ecological stores.

Vitaem purchased a truck for 40.000 euros. The truck is expected to be driven 24.000 km per year over a 5 year period and then sold for approximately 5.000 euros.

Vitaem distinctive trademarkt ¨pure life¨ has been redefine by an important british marketing agency, Lavol. Lavol has issued an invoice that accounts for 4.711 euros. Vitaem considers that will use this design for 10 years.

The 19th of February 2022, Vitaem purchased a site for 265.000 euros on which it planned to buid a flagship store. The site consisted of three acres in Delta de l´Ebre (Tarragona) and included an old house called ¨maset¨half in ruins and Vitaem plans to demolish it.

1. Determine which costs should be included in the cost of the asset (equipment) to calculate anual depreciation.

2. Prepare a comparison of the two alternatives methods of depreciation of the equipment: straight-line and declining method for the first two years.

3. Determine depreciation for the first year of the truck´s useful life by the straight-line and units of output methods if the truck is actually driven 25.600 Km

4. Vitaem needs to book the Lavol´s new trademark design and it has decided that it will use the straight-line method. Please determine the depreciation amount for the first year and the book value.

5. Indicate how Vitaem should treat the ¨maset¨ in its financial statement Balance Sheet and explain your reasoning

Weight: 50% weight (each 1-5 weights 10%)

Question 2BMA is Australia’s largest producer and supplier of seaborne metallurgical coal and is owned 50:50 by BHP and Mitsubishi Development. BMA operates seven Bowen Basin mines (Goonyella Riverside, Broadmeadow, Daunia, Peak Downs, Saraji, Blackwater and Caval Ridge) and owns and operates the Hay Point Coal Terminal near Mackay.

BMA recognizes 20 dollars depletion for each ton of coal mined. During the corrent year the company mined 600.000 tons but sold only 500.000 tons, as it was attempting to build up inventories in anticipation of a possible strike b y employees.

1. Indicate how much depletion should be deducted from revenue of the current year?

Weight: 10% weight

Question 3Identify the basic accountable events in the life of a depreciable plant asset. Which of these events directly affect the net income of the current period?Which directly affect cash flows (other than income tax payments)?

Weight: 10% weight

 

Question 4 On January 1st, 2018, the company DECORA, SA acquires a machine, useful life 5 years for a purchase price 25.000 eur.

In payment, the company issues an installment note payable for this amount, plus interests at 12 percent per annum (or 1 percent per month)

This note will be paid in 5 monthly installments of 5.151 eur, beginning on January 1st 2018 and ending in May 1st 2018

1. Prepare an amortization table allocating payments between interest and principal

2. Indicate the liability amount on February 1st that will appear in the Balance Sheet

Weight: 20% weight

 

Question 5 ATM Inc, is a manufacturer of hunting suplies. The following is a summary of the company´s annual payroll – related costs.

Wages and salaries expense (of which 2.200.000 was withheld from employee´s pay and forwarded directly to tax authorities) ........ 7.200.000

Payroll taxes............................................................................................................................................................................................... 580.000

Worker´s compensation premiums............................................................................................................................................................ 250.000

Group Health Insurance premiums............................................................................................................................................................ 725.000

Contributions to employees´pension plan ................................................................................................................................................ 450.000

1. Compute ATM total payroll related costs for the year

2. Compute the net amount of cash actually paid to employees (their take home pay)

3. Express total pay-roll related costs as a percentatge of 1) total wages and salary expense 2) employee´s take home pay

Weight: 10% weight

 

 

It assesses the following learning outcomes:

· Outcome 1: Accounting issues surrounding plant assets

· Outcome 2: liabilities that arise from labor costs

· Outcome 3: comprehension of an installment notes payable, debt financing