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Hi sir, kindly explain me task 4 below
Draft statement of financial position Shuswap LLC as at 3 Dec 20×4.
‘$000
Assets
Non current assets
Land and buildings cost 9000 accumulated dep 1000 c value 8000
Plant and equipment cost 21000 accumulated dep 9000 c value 12000
total c value 20000Current assets
Inventories c value 3000
Receivables c value 2600
Cash at bank c value 1900
Total assets c value 27500Equity and liabilities
Equity
Issued share capital (ordinary shares) c value 6000
Retained earnings c value 12400Non current liabilities
Loan notes (redeemable 20Y0) c value 2000Current liabilities
Trade payable c value 2100
Total c value 22500Suspense 5000
Total 27500:
Notes1 Some inventory items included in the draft statement of financial position at cost 500,000 were sold after the reporting date for 400,000 with selling expenses of 40,000.
2The suspense account is made up of two items
A The proceeds of issue of 4,000,000 50 c shares at 1.10 per share credited to the suspense account from the cash book
B The balance of the account is the proceeds of sale of some plant on 1 January 20×4 with a carrying value at the date of sale of 700,000 and which had originally cost 1,400,000. No other accounting entries have yet been made for the disposal apart from the cash book entry for the receipt of proceeds. Depreciation on plant has been charged at 25% straight line basis in preparing the draft statement of financial position without allowing for the sale. The depreciation for the year relating to plant sold should be adjusted for in fullTask 4
Trade receivables totalling 200,000 are to be written off
Will the following be debited or credited to retained earning ?
Irrecoverable debts Anw: Debit
Depreciation Task 2 : Credit
Inventory adjustment Task 1 : DebitSir pls explain me why we must credit depreciation and debit inventory adjustment?
Inventory must be valued at the lower of cost (500,000) and net realisable value (360,000). At the moment it is value at 500,000 and so it needs reducing by 140,000. To reduce the value we Credit Inventory and Debit retained earnings.
At the moment depreciation has been calculated on plant and equipment costing 21,000. However this figure is wrong because plant costing 1,400 had been sold but had not been removed from P&E. Therefore the depreciation charge should have been lower.
To reduce the depreciation, we Dr Accumulated depreciation and Cr Retained earnings.Sir in other words can we can the excess of depreciation transferred to retained earning ? for statement number 2…. tqvm sir for your explanation
Yes – the expense is reduced, which increases the profit and hence the retained earnings.
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