expenses

Question 1

classification of expenses incl

Answer 1

direct/chargeable expense costs (tool hire for specific job/cost of special designs)
indirect expense costs (factory insurance)
fixed expense costs (factory insurance)
variable expense costs (costs per advert)

Question 2

Expenses other than materials and labour costs can arise for a number of different reasons.

Answer 2

Buildings costs: Rent, business rates, buildings insurance.

Making buildings habitable: Utilities (gas, electricity, water), repairs, maintenance, cleaning.

People-related costs: Health & safety, uniforms, welfare provisions (e.g., tea, canteen), staff training.

Machine operating costs: Fuel/power, maintenance, insurance, depreciation.

Information processing costs: Telephone, postage, fax, stationery, subscriptions to information sources.

Finance costs: Interest, bank charges, lease charges (not dividends).

Selling & distribution costs: Advertising, customer service, warehouse, delivery, vehicle upkeep.

Dealing with the outside world: Fees for auditors, surveyors, solicitors; marketing and market research.

Question 3

rent

Question 4

insurance costs

Question 5

electricity, gas, telecomms

Question 6

subscriptions

Question 7

professional fees

Question 8

hire charges

Question 9

discretionary costs

Question 10

Expense definition by IASB

Answer 10

Decreases in economic benefits during the accounting period in the form of outflows, depletions of assets, or incurrences of liabilities

Question 11

asset expenditure

Answer 11

expenditure resulting in acquisition of NCAs.
- acquired to provide benefits in more than one accounting period.
- charged to SOPL via a depreciation charge over a period of time

Question 12

expense items

Answer 12

incurred for purpose of trade in business to maintain earning capacity of NCAs
- charged to SOPL in related PERIOD

Question 13

depreciation

Answer 13

method writing off asset expenditure
4methods: Straight line, Reducing balance, Machine hour, Product unit method

all aim to write off asset over estimated useful life

Question 14

objectives of depreciation counting

Answer 14

• a way of calculating cost of owning an asset over time
  e.g. if an asset loses $2,000 in value over a year, that loss is a real cost of using the asset to produce goods. Since the asset is essential to production, this cost should be charged to the product.
• to spread out the cost of the asset over as long a period as the asset is used

Question 15

straight line method

Answer 15

charges an equal amount of depreciation each period

Question 16

reducing balance

Answer 16

charges largest amount of depreciation at the beginning of an asset’s life. As the asset grows older the amount charged each period gets steadily smaller

Question 17

machine hour method

Answer 17

charges depreciation in proportion of hours used to expected usage

Question 18

Machine hour method formula

Answer 18

Depreciation/MH
= (Cost - Residual value) ÷ useful life in hours

Annual depreciation
= Depreciation/MH × Actual usage hours

Question 19

product units method

Answer 19

useful life of the asset is expressed in terms of the total number of units expected to be produced

Question 20

Depreciation is calculated until carrying amount reduce to residual value

YES/NO

Answer 20

YES

To ensure asset is fully depreciated

Question 21

Implications of Machine Hour and Production Unit Methods

[ depreciation charged each year would be according to the actual levels of production or machine hours used ]

Answer 21

If production levels or machine hours are higher than expected, then the asset will be fully depreciated earlier than planned

and vice versa

Question 22

recording expenses
direct:
indirect:

Answer 22

• coding to appropriate job/client
• allocated to cost centres+apportioned/absorbed to reflect areas of business that have utilised the resource

Question 23

allocation

Answer 23

process by which whole items are charged to cost centres