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Hi MikeLittle, I would like to ask a question. Could you please help to explain this question? I don’t quite understand this question.
(i) Dexon’s income statement includes $8 million of revenue for credit sales made on a ‘sale or return’ basis. At 31 March 2008, customers who had not paid for the goods, had the right to return $2·6 million of them. Dexon applied a mark up on cost of 30% on all these sales. In the past, Dexon’s customers have sometimes returned goods under this type of agreement.
Thank you.
If it’s a sale on “sale or return” the customer has the right to return the goods if the customer is himself unable to sell them. So the risks and rewards of ownership have not passed from the buyer to the seller – the seller retains the risk of non-saleability.
So it’s not a sale! We therefore need to cancel the revenue of $2.6m and the receivable
In addition, we need to bring the goods back into inventory at cost (100/130 * $2.6m) = $2m
OK?
Hi,
I wondered if you could explain how the draft retained profit arrived at $96,700.
Many Thanks
What about …… Given in the question!
Here’s a bit of copy and paste
“Retained earnings – at 1 April 2007 12,300
– for the year ended 31 March 2008 96,700”OK?
Sir why do we add back dividend( 15,500) to profit for year how do we know that it has been deducted
We’re actually told that the dividend has been correctly accounted for in the balance sheet.
However, the amount has been taken out of profit for the year in arriving at a figure for profit after dividends. In other words, it has been treated as though it were an expense.
That is an incorrect treatment – dividends are not an expense – they are an appropriation of profits shown as a deduction from retained earnings within the statement of changes in equity
That’s why it has been added back – so that we can arrive at the profit for the year. We can put that figure into statement of changes, deduct the dividend and arrive at the figure for retained earnings carried forward.
Clear?
how come we know it has been treated as an expense if its correctly accounted for then the correct treatment is not treating it as an expense.
confusing 🙁 ..plz explainI seem to remember that the question actually says that the dividend has been correctly accounted for IN THE STATEMENT OF FINANCIAL POSITION
That is, the retained earnings have been reduced by the amount of the dividend. The trouble is, they have been reduced not in the correct way.
Check out the precise wording in the question and maybe it will become clear now I have also tried to explain it
(iii)The investments at fair value through profit and loss are held in a fund whose value changes directly in proportion to a specified market index. At 1 April 2017 the relevant index was 1 200 and at 31 March 2018 it was 1 296.
(iv) In late March 2018, the directors of DEF discovered a material fraud perpetrated by the company’s credit controller that had been continuing for some time. Investigations revealed that a total of $4 million of the trade receivables as shown in the statement of financial position at 31 March 2018 had in fact been paid and the money had been stolen by the credit controller. An analysis revealed that $1.5 million had been stolen in the year to 31 March 2017 with the rest being stolen in the current year. DEF is not insured for this loss and it cannot be recovered from the credit controller nor is it deductible for tax purposes
Hi,
Do you have a question? You just seem to have copied part of the question.
Thanks
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