Important calculations in container account

Important calculations in container accounts

Calculations in container accounts mainly focus on determining the profit or loss associated with containers. The computation of profit or loss for a container typically includes the following common elements:

1. Hiring Profit This is the profit generated from renting out or leasing containers. It is calculated by subtracting the costs associated with the container (e.g., purchase cost, depreciation, maintenance) from the revenue generated through its rental.
2. Profit on Retained Containers This refers to the profit earned on containers that are returned after use (in the case of returnable containers). The profit is calculated based on the difference between the refundable deposit and the expenses related to maintaining and handling the container.
3. Loss on Disposal of Containers This is the loss incurred when a container is sold or disposed of for less than its book value (i.e., its cost minus accumulated depreciation). A loss occurs if the disposal value is lower than the container's depreciated value.
4. Depreciation of Containers in Stock at the End of the Trading Period This refers to the depreciation expense calculated for the containers that remain in the business's stock at the end of the financial period. Depreciation reduces the value of containers over time due to wear and tear or obsolescence.

Specimen statement on the computation of profit or loss on containers

Below is a rewritten specimen of how to compute profit or loss on containers, reflecting the elements mentioned:

Description	Amount (TZS)
Hiring Profit	xx
Add:
Retained Profit	xx
Profit on Disposal of Containers	xx
Total (Additions)	xx
Less:
Loss on Disposal of Containers	xx
Depreciation	xx
Total (Deductions)	xx
Profit or Loss on Containers	xxx

Key Points in the Calculation:

1. Hiring Profit is derived from subtracting the costs of acquiring, maintaining, and depreciating the container from the revenue obtained through rentals.
2. Profit on Retained Containers reflects the gains made from containers that are returned in good condition and meet the refundable rate.
3. Loss on Disposal accounts for the difference between the book value of a container and the amount received from selling it.
4. Depreciation is calculated based on the container's value and is deducted from the revenue or asset account to reflect its reduction in value.

By carefully tracking these elements, businesses can accurately calculate the overall profit or loss related to their container operations.

Example

Furaha Company Ltd. is a business firm which sells its products in returnable containers. The following information relates to container transactions for the year ending 31st December, 2019.

Container rates

S/N	Details	Amount (TZS)
1	Invoice (Charge out) Rate	4,000
2	Refundable Rate (RR)	1,500
3	Valuation Rate (VR)	1,200
4	Purchase Rate (PR)	2,000

You are required to compute the following:

1. Hiring charge;
2. Retained profit; and
3. Depreciation.

Solution

1. Hiring charge = Charge-out Rate - Returnable Rate TZS 4,000 – TZS 1,500 = TZS 2,500
2. Retained profit = Returnable Rate - Valuation Rate TZS 1,500 - TZS 1,200 = TZS 300
3. Depreciation = Purchase Rate – Valuation Rate TZS 2,000 - TZS 1,200 = TZS 800