The overprovision was incorrectly treated as an underprovision.
L
Laszlo·
This where your thinking fails: 'The $200 debit balance represents an overprovision from the prior year'
A provision is a liability so if there would be any unused residue it would be on the credit side. Having a debit balance means last year was underprovisioned. One has to add it to the tax payable.
Hope this helps.
M
Mohammed·
whats the full form of NRV?
M
mrjonbainModerator·
Net Realisable Value. That's the expected selling price less any further costs that will be needed in order to be able to sell said asset/s.
J
Joseph·
I have liked your lectures because you bring out the whole concept and someone is in position to understand.
S
SAI PRIYA·
THANK YOU FOR THE LESSON
M
Monkwe·
Thank you for the lesson. I am glad I attempted the exercise first. -. and going through the solution afterwards highlighted my knowledge gaps. thank you once more very helpful.
J
Jonathan·
Thanks Chris
A
Andrzej·
The way the tax is explained is not clear to me. Is 1,700 amount the expense item which reduces profit before tax figure so that we arrive at profit for the year or is it a tax liability i.e balance sheet item ?
I believe it is an expense item so mathematically we do need to debit tax expense t-account with 1,700.
Effectively from initial b/f Dr balance of 200 (assets) we move c/f Cr balance of 1,500 (liabilities).
Is that correct thinking ?
F
Fawzan·
Hi, Just a quick question, are we not considering the write off of inventories when comparing the lower of Cost and NRV? in this case for gloves (650-500 = 150) 150 as a written down value in P&L? and the same adjusted in inventory valuation at the end of the ear? 4000-150 = 3850
A
Abbos·
Thanks a lot!
Z
Zakkz·
Why Tax expense for the current year is taken as 1700? Current Year tax expenses are only 1500 and aren't that amount which should be charged to the P& L account ? and moreover, the tax balance is a debit amount which means they might have overestimated the tax expenses of the previous year.
Z
Zakkz·
Trial balance amounts of Non-current assets are shown at original costs with accumulated depreciation. So will it be okay if we change that policy and show non-current assets net of depreciation?
N
Nikolett·
Exactly! That is how we get the whole thing to balance.
N
Nikolett·
Exactly!
C
Califa·
I think there is mistake on calculation in PPE 9,120+3,200 should be 12,320, total Assets are correct at 28,735
O
oltjonSupporter·
Hi thanks for the amazing work you guys are doing.
My question is would have been correct to count for the inventory devaluation as a separate account and therefore to present the COGS $150 lower?
Thank you
P
P2-D2Tutor·
Glad you're liking the work we do. Please spread the word! In published company accounts we would not show this as a separate account. We jut include it as part of cost of sales where we start with opening inventory and then add purchases and deduct the closing inventory. Thanks
H
Hasie·
Hi, may I ask why when we calculate the COGS, we have to plus the Depreciation? Thank u.
P
P2-D2Tutor·
Depreciation is an expense through profit or loss and hence added to the cost of sales expense account. Thanks
C
cristinabencze·
Hi- maybe a stupid question, but why is the depreciation for the year for the buildings calculated at historical cost (12000) and not at 12000 less accumulated depreciaton? (as for machine vehicles?)
Thank you, Cristina
F
firnaz17·
that's cause they have mentioned that the depreciation calculated for motor vehicles is using the reducing balance method hence when calculating the depreciation for the year you deduct the accumulated depreciation from the cost and then calculate 20% depreciation. But for buildings they have clearly mentioned that depreciation is calculated on a straight line basis hence you don't deduct the accumulated depreciation from the cost.
M
msanyang·
Accumulated depreciation is subtracted ($2400). It can be found on the trial balance.
K
Kartik·
Hello,
Can you please explain the workings for tax.
Why have we included tax in both SFP and SPL?
Why does tax have a debit balance brought forward, it is not a liability?
D
Daniel·
HAHA very true!!
I
Ilham·
Hello
Can you please explain in bit more detail how you work out inventory adjustment to $4,000?
Many Thanks
N
nranks·
closing inventory is lower of cost and net realisable value..so the cost of the bat is 2500 nrv 4000 so we use lower figure which is cost 2500, the gloves nrv is lower so we use 500, pads cost is lower so we use 1000. This gives us 2500+500+1000=4000
I
Ilham·
Thank you
M
Muhammad Vahaj Ur Rehman·
I wanted To Know That How Do We came Know that The TAx Amount is Under/Over Provision, Even If The Questions Doesn't Mentions It Clearly. Why should the tax $1700 was charged In Statement Of Profit And Loss and $1500 In SOFP? Kindley Reply
M
Martha·
Hello Chris..
I would love to see the solution video of examples 3 for the statement of changes in equity and that of earning per share for example 2 ie. Multiple shares issues and prior year comparative...please.
K
kellison·
how can one answer this question? uneaned revenue includes $100 for services not performed for the client . the terms for the sale were that,on 1 jan, 2018,real estate sold equipment to T for $620. the price includes a two year assurance warranty received and paid for the equipment on the same date. the standalone price for the equipment is $600. while that for the warranty service is $100 per year. including journals
Y
Yoon·
Hi sir,
I have a problem in inventory part.
I am so confused, why didn’t related to opening inventory in SFP inventory?
T
taherkira·
Thanks a lot Chris, may God bless you.
P
Phumzile·
accounting has never been so clear to me, thanks alot Chris
L
lottery·
Pls how they get 1800 for cost of sales ,distribution and administration
P
Phumzile·
My response might be a little too late, but, on the additional information it is statetd that staff cost is spit equally among the (3 costs) cost of sales, dist and adm cost (5400 devide by 3)
A
Aisha·
Hi Teacher,
I have a little doubt. I though the inventory information given would be used to calculate the closing inventory for cost of sales .?
P
pmatangi·
am also waiting for a response on this one
D
Ditson·
Hi Chris,
Would you be kind to explain my doubts
1. Deprecation: As per the TB the accum. depr. for buil. Is 2,400 as of 1/1/17 – Why did we assume that this is the total deprecation of the building up-until 1/1/17? Can't we take this as last yr depe value and since it’s the straight line method we apply the same value for this year?
2. I wan in an impression that TB represents the value as of statement date. If yes, how can we take the Building value as the original cost of building for deprecation calculation? Note: AI1 – No additional assets are bought or sold during the year.
3. I am referring to previous comments regarding Tax: in your response, you mentioned ‘If that $200 opening balance is a debit, then your answer is incorrect’. Isn’t the Tax value $200 is in Debit side of the TB?
Thank you very much for your time and effort.
P.s: This is my 1st A/c paper after a long time. Last time I did A/cs was when I was at uni 13yrs ago.
Kind Regards
Ditson
M
MikeLittleTutor·
1 The word 'accumulated' means the total amount of depreciation that has been charged in respect of that asset since the date of acquisition
The double entry to record depreciation is:
Dr Depreciation Expense Account
Cr Accumulated Depreciation Account
The figure in the Expense Account is charged against the year's profits through the statement of profit or loss and the newly-increased figure in the Accumulated Depreciation Account is carried forward and set-off against its related asset for the purposes of showing the net book value of that asset on the statement of financial position
It may help you to imagine it as a negative asset to be read in conjunction with its related asset
2 Your impression that "the trial balance represents the value as of statement date" is really quite alarmingly wrong! Unless a business has adopted the revaluation method for its assets (and thus will revalue on a regular basis to reflect current values) figures in the financial statements of that business in relation to tangible non-current assets represent the cost of and the accumulated depreciation on those assets. It would only be by an amazing coincidence that the current value of an asset was equal to its historic cost less accumulated depreciation
3 My earlier response of ‘If that $200 opening balance is a debit, then your answer is incorrect’ was to set up the position where I was then able to correct the post from Mayzin where that post was trying to explain to Vanlishoutp the way in which the tax figure had been calculated
Mayzin's explanation was wrong!
In an exam question, the examiner could give you a trial balance with a figure in the line for 'taxation' together with a note that says something like 'The figure for taxation in the trial balance represents the over- or under-provision for the previous year.
That figure in the trial balance could be in the column for debit balances or in the column of credit balances ... it depends whether it was an over- or an under-provision
For your information, if it's in the debit column, that means that we had under-provided for the tax liability in the prior year ... but you DO NOT need to know that!
Just accept that it's a debit (or a credit as the case may be)
That is the situation that Mayzin was trying unsuccessfully to explain
OK so far?
You mention in your post that 'Last time I did A/cs was when I was at uni 13yrs ago'
May I suggest that you could usefully spend some time watching John Moffat's lectures for Financial Accounting on this site (used to be called F3)
OK?
M
May·
Sayar,
Let me clarify for the tax payable, as per additional information number 4, the balance of tax over/under provision for the prior year. That means in the TB, $200 debited is opening.
An estimate of $1,500 has been made for the tax payable at the year-end. That means closing is $1,500 is going to SFP and difference 1300 which is 1500 credited and 200 debited is going to SPL taxable.
Therefore SPL tax amount is should be 1300 instead of 1700?
Thank you.
May
M
MikeLittleTutor·
If that $200 opening balance is a debit, then your answer is incorrect
In order to arrive at $1,500 as a liability on the SFP, ie an amount of $1,500 credit brought down below the total lines, there must be a corresponding debit for $1,500 (narrative 'carried down') above the total lines
That means that there are 2 amounts above the total lines on the debit side ($200 and $1,500)
To balance this account off and take the missing / balancing figure to the Statement of Profit or Loss, we need an entry on the credit side of $1,700 as the tax charge for the year
OK?
K
Khang·
Thanks Mike, I think the matter here is that at the begining, tax is in debit side but at the end of the period, tax is payable amount. This means that at the end, tax is in credit side
M
Muhammad Irfan·
Do we need to worry about "Suspense Accounts" in the Published accounts question???
P
P2-D2Tutor·
Yes, a suspense account may arise in the trial balance and you will need to clear it.
Thanks
P
Paula·
Hi,
On the tax working, I understand the b/f position of 200 and the additional amount paid of 1.500 to end up with a c/f balance of 1.700 on the SFP but you show 1.500 in your overview. I just would have thought the P/L impact would be 1.500 and not 1.700 since the 200 b/f thus incurred in prior year not in 2017.
Not sure how you end up with 1.700 on the SPL and 1.500 on the SFP :-).
P
Paula·
Hi,
On the tax working, I understand the b/f position of 200 and the additional amount paid of 1.500 to end up with a c/f balance of 1.700 on the SFP. I just would have thought the P/L impact would also be 1.500 and not 1.700. I really don't understand the 1.700 SPL bcs i would have expected that the 200 was incurred in prior year not in 2017.
M
MikeLittleTutor·
If that $200 opening balance is a debit, then your answer is incorrect
In order to arrive at $1,500 as a liability on the SFP, ie an amount of $1,500 credit brought down below the total lines, there must be a corresponding debit for $1,500 (narrative ‘carried down’) above the total lines
That means that there are 2 amounts above the total lines on the debit side ($200 and $1,500)
To balance this account off and take the missing / balancing figure to the Statement of Profit or Loss, we need an entry on the credit side of $1,700 as the tax charge for the year
OK?
P
Paula·
Got it ! thanks ! :-)
P
phyl1998·
Hi Chris
There must be a missing video about the ‘statement of changes in equity’ part. In the note, there is a separate page about SOCE and you also mention that at the beginning of this vedio, but we didn’t see it either in this or the next video. Please check it.
S
Sandhya·
Hi Chris,
I see that in additional information point 4. tax estimate of 1,500 is in terms of pounds. Is it an error?
Thanks
Sandhya
P
P2-D2Tutor·
Hi Sandhya,
Good spot! Yes, that's a small typo and I'll get it updated for the next set of notes.
Thanks
M
Matt·
The bit on statement of changes in equity isn't there.
D
double02k·
HI
i did not understand how you came up with your closing inventory of 4000
E
ezzathassan·
Compare the cost and NRV and choose the lower value.
A
adithya1998·
Hello sir. Can you please tell me how come only lower costs are taken in the second additional information regarding the inventory at the end?
P
P2-D2Tutor·
Hi,
Inventory is recognised at the lower of cost and NRV in application of the prudence concept. Therefore any fall in value of inventory below cost is recognised immediately and profit is only recognised once the goods are sold.
Thanks
P
P2-D2Tutor·
Hi,
Thanks for pointing it out, I'll update it so that it is correct .
Thanks
M
Marcia·
Hello Teacher,
Would like to know if there is any video about changes in equity?. I can not find here. In our notes on page 13 and 14 there is an example about it.
P
P2-D2Tutor·
Hi,
If it isn't there, then one doesn't exist at this moment in time. I'll do my best to try and get one recorded before the September exams.
The $200 debit balance represents an overprovision from the prior year, meaning tax was overestimated and should reduce this year’s expense.
But the video shows a $1,700 tax charge to SPL:
$1,500 (current estimate) + $200 (overprovision) — ? wrong
It should be:
$1,500 – $200 = $1,300 ?
The overprovision was incorrectly treated as an underprovision.
The $200 debit balance represents an overprovision from the prior year, meaning tax was overestimated and should reduce this year’s expense.
But the video shows a $1,700 tax charge to SPL:
$1,500 (current estimate) + $200 (overprovision) — ? wrong
It should be:
$1,500 – $200 = $1,300 ?
The overprovision was incorrectly treated as an underprovision.
A provision is a liability so if there would be any unused residue it would be on the credit side. Having a debit balance means last year was underprovisioned. One has to add it to the tax payable.
Hope this helps.
I believe it is an expense item so mathematically we do need to debit tax expense t-account with 1,700.
Effectively from initial b/f Dr balance of 200 (assets) we move c/f Cr balance of 1,500 (liabilities).
Is that correct thinking ?
My question is would have been correct to count for the inventory devaluation as a separate account and therefore to present the COGS $150 lower?
Thank you
Thank you, Cristina
Can you please explain the workings for tax.
Why have we included tax in both SFP and SPL?
Why does tax have a debit balance brought forward, it is not a liability?
Can you please explain in bit more detail how you work out inventory adjustment to $4,000?
Many Thanks
I would love to see the solution video of examples 3 for the statement of changes in equity and that of earning per share for example 2 ie. Multiple shares issues and prior year comparative...please.
I have a problem in inventory part.
I am so confused, why didn’t related to opening inventory in SFP inventory?
I have a little doubt. I though the inventory information given would be used to calculate the closing inventory for cost of sales .?
Would you be kind to explain my doubts
1. Deprecation: As per the TB the accum. depr. for buil. Is 2,400 as of 1/1/17 – Why did we assume that this is the total deprecation of the building up-until 1/1/17? Can't we take this as last yr depe value and since it’s the straight line method we apply the same value for this year?
2. I wan in an impression that TB represents the value as of statement date. If yes, how can we take the Building value as the original cost of building for deprecation calculation? Note: AI1 – No additional assets are bought or sold during the year.
3. I am referring to previous comments regarding Tax: in your response, you mentioned ‘If that $200 opening balance is a debit, then your answer is incorrect’. Isn’t the Tax value $200 is in Debit side of the TB?
Thank you very much for your time and effort.
P.s: This is my 1st A/c paper after a long time. Last time I did A/cs was when I was at uni 13yrs ago.
Kind Regards
Ditson
The double entry to record depreciation is:
Dr Depreciation Expense Account
Cr Accumulated Depreciation Account
The figure in the Expense Account is charged against the year's profits through the statement of profit or loss and the newly-increased figure in the Accumulated Depreciation Account is carried forward and set-off against its related asset for the purposes of showing the net book value of that asset on the statement of financial position
It may help you to imagine it as a negative asset to be read in conjunction with its related asset
2 Your impression that "the trial balance represents the value as of statement date" is really quite alarmingly wrong! Unless a business has adopted the revaluation method for its assets (and thus will revalue on a regular basis to reflect current values) figures in the financial statements of that business in relation to tangible non-current assets represent the cost of and the accumulated depreciation on those assets. It would only be by an amazing coincidence that the current value of an asset was equal to its historic cost less accumulated depreciation
3 My earlier response of ‘If that $200 opening balance is a debit, then your answer is incorrect’ was to set up the position where I was then able to correct the post from Mayzin where that post was trying to explain to Vanlishoutp the way in which the tax figure had been calculated
Mayzin's explanation was wrong!
In an exam question, the examiner could give you a trial balance with a figure in the line for 'taxation' together with a note that says something like 'The figure for taxation in the trial balance represents the over- or under-provision for the previous year.
That figure in the trial balance could be in the column for debit balances or in the column of credit balances ... it depends whether it was an over- or an under-provision
For your information, if it's in the debit column, that means that we had under-provided for the tax liability in the prior year ... but you DO NOT need to know that!
Just accept that it's a debit (or a credit as the case may be)
That is the situation that Mayzin was trying unsuccessfully to explain
OK so far?
You mention in your post that 'Last time I did A/cs was when I was at uni 13yrs ago'
May I suggest that you could usefully spend some time watching John Moffat's lectures for Financial Accounting on this site (used to be called F3)
OK?
Let me clarify for the tax payable, as per additional information number 4, the balance of tax over/under provision for the prior year. That means in the TB, $200 debited is opening.
An estimate of $1,500 has been made for the tax payable at the year-end. That means closing is $1,500 is going to SFP and difference 1300 which is 1500 credited and 200 debited is going to SPL taxable.
Therefore SPL tax amount is should be 1300 instead of 1700?
Thank you.
May
In order to arrive at $1,500 as a liability on the SFP, ie an amount of $1,500 credit brought down below the total lines, there must be a corresponding debit for $1,500 (narrative 'carried down') above the total lines
That means that there are 2 amounts above the total lines on the debit side ($200 and $1,500)
To balance this account off and take the missing / balancing figure to the Statement of Profit or Loss, we need an entry on the credit side of $1,700 as the tax charge for the year
OK?
Thanks
On the tax working, I understand the b/f position of 200 and the additional amount paid of 1.500 to end up with a c/f balance of 1.700 on the SFP but you show 1.500 in your overview. I just would have thought the P/L impact would be 1.500 and not 1.700 since the 200 b/f thus incurred in prior year not in 2017.
Not sure how you end up with 1.700 on the SPL and 1.500 on the SFP :-).
On the tax working, I understand the b/f position of 200 and the additional amount paid of 1.500 to end up with a c/f balance of 1.700 on the SFP. I just would have thought the P/L impact would also be 1.500 and not 1.700. I really don't understand the 1.700 SPL bcs i would have expected that the 200 was incurred in prior year not in 2017.
In order to arrive at $1,500 as a liability on the SFP, ie an amount of $1,500 credit brought down below the total lines, there must be a corresponding debit for $1,500 (narrative ‘carried down’) above the total lines
That means that there are 2 amounts above the total lines on the debit side ($200 and $1,500)
To balance this account off and take the missing / balancing figure to the Statement of Profit or Loss, we need an entry on the credit side of $1,700 as the tax charge for the year
OK?
There must be a missing video about the ‘statement of changes in equity’ part. In the note, there is a separate page about SOCE and you also mention that at the beginning of this vedio, but we didn’t see it either in this or the next video. Please check it.
I see that in additional information point 4. tax estimate of 1,500 is in terms of pounds. Is it an error?
Thanks
Sandhya
Good spot! Yes, that's a small typo and I'll get it updated for the next set of notes.
Thanks
i did not understand how you came up with your closing inventory of 4000
Inventory is recognised at the lower of cost and NRV in application of the prudence concept. Therefore any fall in value of inventory below cost is recognised immediately and profit is only recognised once the goods are sold.
Thanks
Thanks for pointing it out, I'll update it so that it is correct .
Thanks
Would like to know if there is any video about changes in equity?. I can not find here. In our notes on page 13 and 14 there is an example about it.
If it isn't there, then one doesn't exist at this moment in time. I'll do my best to try and get one recorded before the September exams.
Thanks