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Ok thanks john. So its appropriate for me to answer right here? May you also moment on my answer
Note taken John. I believe saaabiiirr shouldn’t have answered aswel? I didn’t know this forum was for tutors to answer only. Which forum from the menu is for students only?
What happened to the cheque received on 1 December 2007? That statement seems incomplete. Thus assuming that cheque wasnt recorded in the cash book by 30 November 2007 the correct bank balance to be included in the financial statements at 30 November 2007 will be calculated as follows:
Cash book balance 25050 Dr
Deduct un
presented cheques (8612)
Deduct deposits not
Yet cleared at bank (11665)
Deduct unrecorded
Payments. (2157)
Correct error. (620)Balance as per
Bank statement. 1996 CrI hope you found this to be helpful. Good Luck!!!!
Hi j4son!
The present value of the proposal is referred to as the net present value. It is the difference between the present value of the investment (or rather the initial cost of the investment) and the present value of future benefits in this case future cash in -flows. And it is easy to calculate as shown below. For better presentation let’s use the following abbreviations:I=initial investment
Yr=year
Interest factor= 1/(1+r)^n =IF where n is the number of years
Present value =PV
Net present value=NPV
Net Cash inflows =NCFs
Interest rate =cost of capital=rPV of I= I x IF in Yr zero
= 1,000,000 X 1
= $1,000,000Present value of NCFs
Yr 1; 100,000(1-0.3)(IF)
=70,000( 0.9091)
= $63, 637Yr 2; 200,000(1-0.3)(IF)
=140,000(0.8264)
= $115,696Yr 3; [(250,000)(1-0.3)]/0.1)(IF)
= 1,750,000(0.8264)
= $1,446,200The total PV of NCFs=63,637+115,696+1,446,200=$1,625,533
Therefore the NPV of the proposal = PV of NCFs – PV of I
= 1,625,533-1,000,000
= $625,533Take note that the perpetuity is a constant cash flow that that’s has an indefinite period. To determine its present value the constant value is divided by the interest rate or cost of capital . In our case we will first adjust for tax by geting the amount after tax then divide by 10%. it will be [250,000(1-0.3)/0.1= 1,750,000. This amount is the PV of the perpetuity at the beginning of year 3 or at the end of year 2. Remember that the perpetuity starts from year 3 and not after year 3. So the cash in flows in year 3 are part of the perpetuity. That’s why I said its present value is at the beginning of year 3 or at the end of year 2, just one day difference.
But to find the PV of the perpetuity today ie year zero, we have to discount the 1,750,000. Over the period of 2 years. This will be :
1,750,000 X (1+0.1)^-2
=1,750,000X(0.8264)
=1,446,200Also, note that the cash inflow values used should be after tax .
And overall if you were asked to advise the company, the company should accept the investment since NPV>0 ie $625,533 is greater than zero .
I hope you found this to be helpful. Good Luck!!!!
Accounting for Sales tax requires that sales tax should not appear in the statement of profit or loss account and other comprehensive income but will appear in the statement of financial position as either an asset(refund) or liability(tax payable). The question states that only the net tax amount was charged to the income statement. This means that 70 ,the only tax mentioned in the question , was charged, in this case excluded from the income statement. Not the whole 470 was expensed but only 400. So we conclude that the tax treatment was correct on the basis that home telephone bills were considered as a busiyness transaction. This implies that only the base amount of 400 affected profit while the tax of $70 had no effect on the profit figure of $32,500.
But since $ 400 wasn’t related to business activities and yet treated as an expense , we have to add it back to the profit figure to get $32,900 (32500+400) .
Bearing in mind that the treatment for wages amounting to $100/week is correct our adjusted profit will then be $32,500 as illustrated above.
The telephone bill(amounting to 470 i.e 400+17.5%x400) was a personal expense ,something outside business activities and it has to be treated as a drawing which will be shown in the balance sheet .
Therefore applying the formula : capital = capital at beginning of the year+net profit for the year-drawings
Capital as at 31 March 20X8 will be : 6,500+32,900-470= $ 38,930.
I hope you found this to be helpful. Good Luck!!!!
Basically test of controls involves testing the effectiveness of the client’s internal control system. It aims at establishing how effective the controls are in preventing and detecting misstatements of items in financial statements.
Taking for instance authorization of activities as a control in an organization, the auditor will check whether the activities were properly authorised. A positive result will reduce the possibility of material misstatements of items in the financial statements.
On the other hand substantive procedures are performed in order to test whether items in the financial statements are materially misstated. For example , the auditor may do a physical check up to test whether the recorded fixed assets actually exist and that they are recorgnised at a reasonable amount .
The general distinction is that test of controls focuses on internal controls whilst substantive procedures focus on items in the financial. You can further distinguish the two facets based on the actual audit procedures to be carried out by the auditor. But I feel this is enough and hope that you will find it helpful. Good luck!!!!
