1
1. Write the heading for the given income statement assuming the end date as
January 31, 2020.
- Better-Price Stores
Income Statement For the year ending December 31, 2020
The heading of the income statement conveys critical information. The name of the
company appears first, followed by the title "Income Statement." The third line tells
the reader the time interval reported on the profit and loss statement
2. Classify the components in given income statements under operating and
non-operating revenue, operating and non-operating expenses and finance
cost.
Operating revenue Sales revenue,
Non OR Interest received from investment
Op expense Insurance, salaries n wages, rent and
rates, heat and light, telephone and
postage, depreciations, motor vehi..
NO expense Interest on borrowing
3. How the cost of goods sold is calculated? Explain with example.
- COGS = Beginning Inventory + Purchases during the Period – Ending Inventory
Your business has a beginning inventory of $9,000, makes purchases valued at $5,000,
and is left with an ending inventory of $2,000. Use the COGS formula.
COGS = $9,000 + $5,000 – $2,000
COGS = $12,000
4. Differentiate between:
- Operating and non-operating expense
Aoshieane Gopali
2
Operating expenses are the costs a Some business expenditures are
business incurs as part of its regular incurred for reasons that don’t
business activities, not including the involve normal business operations.
cost of goods sold
Administrative expenses For instance, the costs of relocating
Office supplies your business falls outside core
business operations and would be
Salaries for administrative
recorded as a non-operating
personnel expense. Another example of a non-
Commissions, marketing operating expense is interest on
and advertising borrowed money.
Rent and utilities.
Costs of some specialized
services, such as hiring
consultants or accountants, are
also considered operating
expenses.
- Operating and non-operating revenue
Operating income is an Non-operating income is the
accounting figure that portion of an
measures the amount organization's income that is
of profit realized from a derived from activities not related
business's operations, after to its core business operations.
deducting operating expenses
such as wages, depreciation,
and cost of goods
sold (COGS).
It can include items such
as dividend income, profits or
losses from investments, as well
as gains or losses incurred by
foreign exchange and asset write-
downs.
- Revenue and capital expenditure
Revenue expenditures are Capital expenditures are
the ongoing operating typically one-time large
Aoshieane Gopali
3
expenses, which are purchases of fixed assets
short-term expenses used that will be used for
to run the daily business revenue generation
operations. over a longer period.
Salaries and employee A facility or factory,
wages including an upgrade or
Utilities and Rent expansion
Business travel
Property taxes Vehicles, such as trucks
used for the delivery of
products
Manufacturing equipment
Computers
Furniture
5. Explain finance cost.
-Finance costs are also known as “financing costs” and “borrowing costs”. Companies
finance their operations either through equity financing or through borrowings and loans.
The providers of funds want reward for against their funds. The equity providers want
dividends and capital gains. The providers of loans seek interest payments.
6. Does the sales revenue include?
- Payment received for goods to be delivered in 2021? yes
- Goods delivered in March 2020 but payment deferred for 2021? No
Revenue is recognized when earned and payment is assured; expenses are recognized
when incurred and the revenue associated with the expense is recognized.
7. Does the salary expense include:
- Service provided during 2020 and payment deferred for 2021? no
- Payment made during 2020 for service to be consumed during 2021? yes
Aoshieane Gopali
4
8. Define depreciation. Name the commonly used methods of calculating
depreciation.
Answer: depreciation is defined as the reduction of recorded cost of a fixed asset in a
systematic manner until the value of the asset becomes zero or negligible.
Consumed part of fixed asset.
There three methods commonly used to calculate depreciation. They are:
1. Straight line method
2. Unit of production method
3. Double-declining balance method
9. Better Prices Store acquired a vehicle costing Rs. 500,000 on 1st Jan, 2020. The
scrap value is expected to be Rs. 50,000/- with economic life of 10 years. Show the
annual depreciation, net book value and accumulated depreciation for 1st three
years.
10. Refer Question # 9, with annual depreciation of 10% per annum. Show the
annual depreciation, net book value and accumulated depreciation for 1st three
years following written down value method.
Aoshieane Gopali
