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Sorry for the error in the question Sir,the below is the corrected one:
The directors of Tunshill are disappointed by the draft profit for the year ended 30 September 20X3. The company’s assistant accountant has suggested two areas where she believes the reported profit may be improved:
(i) A major item of plant that cost $20 million to purchase and install on 1 October 20X0 is being depreciated on a straight-line basis over a five-year period (assuming no residual value). The plant is wearing well and at the beginning of the current year (1 October 20X2) the production manager believed that the plant was like’ to last eight years in total ie from the date of its purchase). The assistant accountant has calculated that, based
on an eight-year life (and no residual value) the accumulated depreciation of the plant at 30 September 20X3 would be $7.5 million ($20 million /8 years x 3). In the financial statements for the year ended 30 September 20X2, the accumulated depreciation was $8 million ($20 million/S years x 2). Therefore. by adopting an eight-year life. Tunshill can avoid a depreciation charge in the currentyear and instead credit $0.5 million ($8 million— $7.5 million) to profit or loss in the current year to improve the reported profit.
(ii) Most of Tunshill s competitors value their inventory using the average cost (AVCO) basis, whereas Tunshill uses the first in first out (FlFO) basis. The value of Tunshills inventory at 30 September 20X3 (on the FlFO basis) is $20 million, however on the AVCO basis it would be valued at $18 million. By adopting the same
method (AVCO) as its competitors, the assistant accountant says the company would improve its profit for the year ended 30 September 20X3 by $2 million. Tunshill’s inventory at 30 September 20X2 was reported as $15 million, however on the AVCO basis it would have been reported as $13.4 millionWhat will be the effect of change in (ii) on profits for yr ended 30 sep X3?
Increase by $400,000
Decrease by $400,000
Increase by $1,600,000
Decrease by $1,600,000The answer is Decrease by $400,000 but I cant understand why.
P & Co maintain a receivables ledger control account within the nominal ledger. At 30 November 20X0, the total of the list of individual balances extracted from the receivables ledger was $15,800, which did not agree with the balance on the receivables ledger control account. An examination of the books revealed the following information, which can be used to reconcile the receivables ledger and the receivables ledger control account.
1)The credit balance of $420 in Ahmed’s payables ledger account had been set off against his account in the receivables ledger, but no entries had been made in the receivables and payables ledger control accounts.
2)The personal account of Mahmood was undercast by $90.
3)Yasmin’s balance of (debit) $780 had been omitted from the list of balances.
4)Thomas’ personal account balance of $240 had been removed from the receivables ledger as a bad debt, but no entry had been made in the receivables ledger control account.
5)The January total of $8,900 in the sales daybook had been posted as $9,800.
6)A credit note to Charles for $1,000, plus sales tax of $300, had been posted to the receivables ledger control account as $1,300 and to Charles’ personal account as $1,000.
7)The total on the credit side of Edward’s personal account had been overcast by $125What is the revised total of the balances in the receivables ledger after the errors have been corrected?
ans:-$16,495
My doubt is why are we subtracting error 6 (300) and adding error 7(125) to the balance, we are supposed to do the opposite right?Thank You.
Okay sir thank you very much. 🙂
I got another question in this area :-
Marlon created a suspense account with a debit balance of $1,250 in order to balance his trial balance.
He subsequently investigated and found the following errors:
(1) The closing balance of the purchase ledger control account at the current year-end has been undercast by $160
(2) Cash received of $450 from customers has only been entered into the cash account
(3) The purchase returns day book has been overcast by $300
What is the remaining debit balance on the suspense account after these errors have been corrected?
A $640
B $2,160
C $1,860
D $1,560
The correct answer option is CMy doubt is why are we making the correction entry for the first adjustment as Suspense a/c Dr Purchase a/c Credit. It should be Purchase a/c Dr Suspense a/c Cr right.
Thank you.
hey sir, I have a doubt in the following question:-
The total of a list of balances in R Co’s receivables ledger was $633,700 on 30 September 2014. This did not
agree with the balance on R Co’s receivables ledger control account. The following errors were discovered.
(i) A credit balance on an individual customer’s account of $200 was incorrectly
extracted as a debit balance
(ii) An invoice for $3,223 was posted to the customer account as £3,232
(iii) The total of the sales returns day book was overcast by $500
What amount should be shown in R Co’s statement of financial position for accounts receivable at 30 September
2014?
A $633,291
B $633,409
C $633,491
D $633,791Answer is option A.
My doubt is why we dont include the 3rd adjustment of sales return book.Thank you.
Sir, but why doesn’t the sales day book correction entry go through suspense a/c?
The errors i mentioned in the first question are errors of principle and the correction entry for the second question is Suspence a/c Dr right?
To Sales a/c CrNo, I just want to confirm whether my answers are right or wrong because the respective answers given for the question dont seem right. Please tell me the answers for the above questions.
Hey sir, got another question in this area.
Q:- Which type of errors are the following:-
a) The purchase of goods for resale using cash was debited to the motor vehicles a/c and credited to the cash book using the correct amount in both cases.
b)The purchase of goods for resale using cash was debited to the purchases a/c and credited to the sales day book using the correct amount in both cases.Thank You.
Hey sir i got another question too:-
In the SOFP at 31 Dec X5 , A Co reported net receivables of $12000. During 20X6, A Co made sales on credit $125000 & received cash from customers $155500. At 31 Dec X6 , bad debts of $7100 and increased allowance for receivables by $950 to $2100. What is the net receivables figure at 31 Dec X6?
The answer is 13,450 as per book but I am getting the answer 14,400. Could you please tell me tge reason ?
