Question:

On a pilot basis a Government Department, PPO, is preparing its financial statements using accrual basis. The following information is provided:

The following balances appeared in the balance sheet of PPO at 31 March 2008.

                                                      Rs
Plant and equipment - cost        840,000
Accumulated depreciation          370,000

In the year ended 31 March 2009 the following transactions took place:

1. Plant which cost Rs 100,000 with a written down value of Rs 40,000 was sold for Rs 45,000 on 10 December.

2. New plant was purchased for Rs 180,000 on 1 October 2008. It is the policy of the company to charge depreciation at 10 per cent per year on a straight line basis, with a proportionate charge in the year of acquisition and no charge in the year of sale. None of the plant was over 10 years old at 31 March 2008.

Required:
(a) Prepare the following ledger accounts to record these transactions for the period. A cash account is not required.
(i) A Plant and Equipment Account
(ii) A Depreciation Account
(iii) A Disposal Account

(b) At 31 March 2008, PPO had a provision for doubtful debts of Rs10,000, appearing as a balance on the bad and doubtful debts account.

At 31 March 2009 trade debtors amounted to Rs 280,000 and on reviewing the balances it was decided to write off debts totalling Rs17,000 and to adjust the provision to five per cent of the debtors.

Show the bad and doubtful debts account for 2009

(c) Prepare extracts of Balance Sheet and Income Statement as at 31 March 2009 to show how the balances will be presented.

(d) Discuss how these transactions would be accounted using cash basis.