Financial Accounting – Final Exam – April 13, 2019

7. Accounting for Property, Plant and Equipment (40 points - 40 minutes)

Casillas, after retiring from soccer on June 27, 2012, decides to remain in Donezk, Ukraine
and form a partnership with Ronaldo, the CR partnership. They offer bus travel from Donezk,
Ukraine to Madrid with continuing service to Lisbon. Their financial reporting period is the
calendar year. Assume a world without VAT.
Instructions:
a. Compute the depreciation tables using the straight-line method.
b. Provide all necessary journal entries assuming the use of the straight-line
method for 2012 and 2013 for CR.
The following transactions occur with regards to a commercial bus:
• July 15, 2012 to July 25, 2012
CR acquires a 40 seater Mercedes Benz bus from Daimler, FOB Shipping, for
250,000 on account. For purposes of the acquisition of the vehicle, Ronaldo
purchases a Lufthansa one way ticket for travel from Donezk via Frankfurt to
Ulm for 1,500 which he funds from his private credit card. Casillas and
Ronaldo agree that the partnership will not reimburse Ronaldo for the funds
paid on behalf of CR. It takes Ronaldo until July 18 to drive the bus to Kiev,
Ukraine, using a portable navigation system worth 250 that he contributes to
the partnership. During the trip, Ronaldo and the bus consume 250 of coffee
and 1,500 of diesel fuel (paid in cash), respectively. In Kiev, the bus interior is
equipped with used dutch tents to protect the seats for 5,000 on account. On
July 25, 2012, Ronaldo drives the bus from Kiev to Donezk, where (on the
same day) Casillas permanently installs a coffee machine acquired on
account for 100 in the bus, finally rendering the bus ready for the intended use
of the CR partnership. The expected useful life is 60 months, the salvage
value estimated at 50,000.

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 Financial Accounting – Final Exam – April 13, 2019

• January 26, 2013

CR finally installs a cubicle in the luggage compartment in the bus for 10,000
on account to allow for a second driver to sleep soundly during the drive. The
cubicle increases the operating efficiency of the vehicle. The remaining useful
life increases from 60 months to 72 months. The salvage value remains
unchanged.

• July 28, 2013

CR decides to discontinue the Donezk-(Madrid)-Lisbon service due to lack of
passengers on 52h-trip. CR sells the bus for 215,000 in cash.

Depreciation Net Book Value Depreciation Depreciation Accumulated Net Book Value
Base Starting Balance Rate Expense Depreciation EndingBalance
2012
2013
2014
2015
2016
2017

Depreciation Net Book Value Depreciation Depreciation Accumulated Net Book Value
Base Starting Balance Rate Expense Depreciation EndingBalance
2012
2013
Part I
2013
Part II
2014
2015
2016
2017

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 Financial Accounting – Final Exam – April 13, 2019

8. Accounting for Property, Plant and Equipment – VAT (16 points - 16 minutes)
On January 1, 2013, Iniesta and Pepe set up P.I. partnership as podologists in
Ludwigsfelde, nearby Berlin. They treat customers of the Kristallbad seeking to
rejuvenate their feet. Their financial reporting period is the calendar year. Assume
that VAT is 20%. The amounts as per below do not include VAT yet.

Instructions:
Provide all necessary journal entries assuming the use of the double-declining
method for 2013 and 2014 for P.I.

January 1, 2013
P.I. purchases a massage table for 800 in cash. The estimated useful life is 5 years,
the estimated salvage value 200.

January 1, 2014
The massage table is painted orange for 200 on account. Neither the operating
efficiency, the useful life nor the capacity of massage table change. Salvage value
also remains unaffected.

April 30, 2014

Deciding to buy new equipment in May 2014 for P.I., Iniesta removes the massage
table from P.I.’s operation and will continue to the table at his private residence. A
used massage table with similar specifications and age would fetch 675 if sold.
Iniesta will not pay P.I. for the removal.

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