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Hi Mike,
Q1–In Q Ashanti –Para5.
Ashanti sold $5m of goods to customer. It is probable that Ashanti will not recover the amounts outstanding. Ashanti wishes to make an additional allwance of $8m against the total receivable balance at the year end of which $5m relates to this sale.Adjustment for above:
Revene deduct $5m (I am ok with this)
But there is another adjustment causes problem for me:
Impaired receivable deduct $3m in Ahanti’s profit/loss
–Why do we need to do this adjustment?
— why the adjustment for receivable appear in Profit/loss? -I thought it should be included in sofp.Q2–the same question–para 6.
There is a revaluation loss on PPE which was (1.6m).
The adjustment for it:
–deduct 1.6m before gross profit (I am ok with this adj)
–BUT the 1.6m was added back in other comprehensive income–why this adjustment need to be added back in OCI? it is a net revaluation loss after offset the revaluation surplus.Thanks in advance.
I HAVE NO IDEA!!!! It looks like a loss to me, I calculated it as a loss to be charged to Statement of Income, the printed solution says “….charged to Statement of Income ….” so why my printed solution in Kaplan exam kit has added it to Other Comprehensive Income defeats me. It’s probably something really stupid that I’m missing …. but I can’t see it
I’m not sure why you’re having a problem with the doubtful receivable. Because it’e unlikely that the “sale” will generate an economic benefit, it cannot be included within revenue ( and so far, it is included in revenue ) So, we need to remove it from revenue and from receivables ( Dr Revenue Cr Receivables with $5 million )
That’s 5 of the 8 million mentioned in point 5 dealt with.
The other 3 needs to be provided for with the provision amount to carry forward being deducted from the Accounts Receivable figure. To account for this 3 we need to Dr Statement of Income and Cr Provision for Doubtful Debts …. and that’s why the 3 is deducted from the profits
Thank you so much first.
Regarding the Q1–1.6m loss, I will treat it as a deduction in the I/S . I am confused by the kaplan kits answer as well.Regarding the Q2–the receivables. I am clear now. Thanks again.
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