Question

Scenario: Cars for U. (Question asked previously, don't copy other experts answer please)

Jo owns and operates Cars for U, a car sales and service business in Petone. Jo drives her own private Lexus SUV worth $96,000, which she uses 50% of the time for business purposes. The business owns two Toyota sedans valued at a net cost of $25,000 each that are used as courtesy cars in the service department. A business ute (net cost $5,000) has recently failed its warrant of fitness test and Jo has decided to write it off as an expense at the end of the financial year. At the year-end stocktake, Jo has estimated the value of the 20 cars parked in the sale yard at retail value of $650,000. She acquired these mostly through trade-in deals for which she paid the equivalent of $270,000. The average annual repairs, maintenance and running cost for the Lexus, courtesy cars and ute is $50,000 per vehicle. The total operating cost for the year on all the sale cars was $200,000. The value of other business assets is $180,000 and other business operating expenses $96,000.

Tasks

Use the Conceptual Framework as your main guide to help you answer the following questions.

1. Provide a definition of assets. Use a specific example of an asset from Cars for U to help you with your discussion. (Indicate the paragraph numbers in the Conceptual Framework from which you have drawn your definitions.)

2. Using the information given in the scenario above and the definition you discussed in (i), calculate the value of the total business assets of Cars for U.        

3. Provide a definition of expenses. Use a specific example of an expense from Cars for U in your discussion. (Indicate the paragraph numbers in the Conceptual Framework from which you have drawn your definitions.)

4. Using the information given in the scenario and the definition you discussed in (iii), calculate the value of the total business expenses of Cars for U.

Answer 1

Definition of asset:

-Asset is a resource

-controlled by the entity

-as a result of past events-

-and from which future economic benefits are expected to flow to the entity

The private Lexus which is used by the entity for 50% of the time is asset for the business as per the definition given above.

Total Value of business assets Amount Cost of Private Lexus (only 50% value) Cost of Toyota Sedans (as used for service) Cost of 20 cars parked Forms part of inventory 48,000 50,000 25,000*2 270,000 180,000 Value of other business assets Value of business assets 548,000

Definition of expenses:

-Expenses are decreases in economic benefits

-during the accounting period

-in the form of outflows

-or depletions of asset

-or incurrences of liabilities

-that result in decreases in equity,

-other than those relating to distributions to equity participants

The average annual repairs, maintenance and running cost for the Lexus, courtesy cars and UTE are expenses for the business as per the definition given above

Total Value of business expense Business UTE written off 5,000 Annual repairs, maintainence and running cost Lexus (50%) Toyota 25,000 (50% 0150,000) 100,000 (250,000) Operating costs in sale of cars Value of other business expenses 200,000 96,000 Value of business expense 426,000

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