Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Cash in transit
- This topic has 5 replies, 2 voices, and was last updated 7 years ago by MikeLittle.
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- September 30, 2016 at 9:11 am #342104
Hi Mike, I’m confused with the calculation of current assets and liabilities in these two questions:
Question 1: Parentis Co, Kaplan revision kit question 206
“Offspring trade payable account (in the records of Parentis) of $7m does not agree with Parentis’s trade receivables account (in the records of offspring) due to cash in transit of $4m paid by parentis”
Trade receivables calculation:
Total amount of parentis and offspring accounts – 4m CIT – 7m intra groupTrade payables calculation:
Total amount of parentis and offspring accounts – 7 intra groupI got the above question correct.
Then, in this second question the calculation was different:
Question 2: PEDANTIC CO, Kaplan revision kit question 209,
“Sophistic trade receivables account includes $600,000 due from PEDANTIC which did not agree with PEDANTIC’s corresponding trade payable. This way due to cash in transit of $200,000 from PEDANTIC to sophistic. Both companies have positive bank balances”
Current asset account calculation:
Total of group current asset account – $800 PUP + 200 CIT – 600 intra groupCurrent liabilities account calculation:
Total of group current liabilities account – 400 intra group balancesHave I understood the question wrongly?
September 30, 2016 at 4:30 pm #342139Well, yes, I suppose that you must have done!
Within the F7 revision lectures on this site you’ll find me working through Pedantic and Sophistic and in that exercise I believe that I explain fully what is happening with the cash in transit issue
Look at that recording and then come back to me if you’re still struggling
October 1, 2016 at 9:02 am #342156Sorry Mike, I had watched those lectures but still couldn’t understand them. I saw you did the T accounts with the PEDANTIC question but not for the PARENTIS question. The situations in these 2 questions sound the same to me so I’m reaally confused now
October 1, 2016 at 10:13 am #342160Ok, here it is again …
Deal with the in-transit item first (in both cases, whether it be cash or goods, deal with it first)
Identify the ‘receiving’ entity – the entity that is due to receive the cash or the goods that are in transit as at the year end
Make the adjustment in your answer booklet (in the exam) but ALSO make the adjustment on the face of the question
For cash in transit, the adjusting double entry (both parts within the receiving entity’s records) …
Dr Cash
Cr Receivables (probably)
I say ‘probably’ because the most usual situation is where one entity is settling in part the debt to the other entity and that debt that is being partly settled is included within ‘receivables”
If it’s an issue of goods in transit the entry, still both parts of the double entry within the receiving entity’s records, is …
Dr Inventory
Cr Payables (probably – the same ‘probably’ as before but tweaked a little)
As a result of that adjustment the two current accounts / intra-group receivables and payables should reconcile
Then it’s simply a question of reducing combined receivables and combined payables by that newly reconciled figure
Have you worked through the notes example of Dovile and Jurate?
October 1, 2016 at 1:01 pm #342166Oh my goodness! I was actually confused by the workings because one question used current asset and the other divided it into the sub categories of current assets. So stupid! Thanks for the help!
October 1, 2016 at 2:39 pm #342172You’re welcome
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