[krrish123456]

Q39:Inspire is the defendant in a patent infringement lawsuit. Inspire?s lawyers believe the there is
a 30% chance that the court will dismiss the case and Inspire will not have to make any payout. However, if the court rules in favour of the claimant, they believe that there is a 20%
chance that Inspire will be required to pay damages of $200,000 (the amount sought by the
claimant) and an 80% chance that damages will be $100,000 (the amount that was recently
awarded by the same judge in a similar case). The court is expected to rule sometime in 2013
and there is no indication that the claimant will settle out of court.
What is the best estimate of the provision for the lawsuit that should be recognised in
Inspire?s statement of financial position at 31 December 2014 in accordance with
IAS 37?
A $50,000
B $100,000
C $120,000
D $200,000
Sir i am not able to understand the solution of this question
Kindly help

[krrish123456]

By the individual entries i mean the entries relating to totals of analytical columns

[krrish123456]

Yes sir i have watched them
Many segments means like payable ,cash purchase, cash sales etc.
So when we do totalling error in cash book we post the wrong amount to the cash account
But since all individual entries( relating to cash ) to payable ledger control account, receivables ledger control account ,sales account, purchase account etc.. are done correctly there is an imbalance in trial balance
Right sir?!

[krrish123456]

Okay thank you sir!!

[krrish123456]

And also basic assumption should be that we maintain a cash account?

[krrish123456]

Sir it is sensible to assume that since cash book has many segment(or many different entries)
So when we do error in totalling we should use suspense a/c
But when it is written that error is posted to GENERAL LEDGER it means double entry error( as general ledger means a double entry format) and hence no need of suspense a/c???

[krrish123456]

But sir it is given CASH REFUND?
and also no mention of sales a/c is given

[krrish123456]

Okay thanks sir

[krrish123456]

Ok thanks sir

[krrish123456]

Ok thanks sir

[krrish123456]

Yes sir i have watches

I had the doubt that if nothing is given of general allowance at the year end shouldn’t we just carry forward the 11700 allowance??

[krrish123456]

Yes sir i have watched them.
Sir it means if we do wrong total in cash book …trial balance will not balance
But if we do a transposition error in cash book then the same will be posted to general ledger and hence trial balance will balance…right?

[krrish123456]

Sir i have the solution but i am not able to understand it.
It is from kaplan exam kit
I guess there is some error in question
Kindly provide me your perspective sir
Sir please that’s the only doubtful question i have in receivables
Kindly provide me with your solution

[krrish123456]

Thanks sir

[krrish123456]

So sir only 1000 …right ?
Hence purp in p/l = purp in sofp

[krrish123456]

But sir….since it only states the effect of gross profit margin on current ratio shouldn’t we assume other things to remain constant

[krrish123456]

Thank you so much sir!!!!!

[krrish123456]

Sir kindly guide me through the above question

[krrish123456]

Thank you so much sir…i was really afraid of it and you made it easy!!!!!

We only should keep in mind that the purp in p/l and sofp should be same!!!!

[krrish123456]

Sir the question states that 1500 was left to be deducted from 107550

The answer in book shows: 98425 debit side

And credit side:192240+106050

I miswrote the question sir it was
” shortly prior to year end 1500 of irrecoverable were TO BE written off however they were not removed from 107550″
So i guess they should show 1500 as irrecoverable debt on credit side
So that credit side : 192240+106050+1500

[krrish123456]

Thank you very much sir for your help ..you really are a true teacher!!!!!

Sir but if before the acquisition subsidiary sold certain amount of goods to parent and 100% remains unsold

In this case there will be zero purp in p/l( as the sale is before acquisition)
But in sofp the parent will show 100% closing inventory …then it will contain the purp ..i am little bit confused what to do in such situation

[krrish123456]

And sir i am grateful to your reply ..but still i am unsure
If A acquires B on 30 june
B sold goods to A of 10000 each month ( original cost 8000) so that gross profit for b every month is 2000 .At year end 50% of goods remained unsold.
Since a acquired b mid way…only half of b’s profit will be considered for consolidation
So that PURP would be ( 2000×6×50%)
So purp of 6000 would be deducted
BUT i am not able to understand how will this situation be treated in sofp’s closing inventory

[krrish123456]

So sir if A acquires B on 30 June…..and had already trade receivables of B before the acquisition date…will we cancel it or not( as it is pre acquisition)?
Like i asked i would like to give a clear example
Trade receivables
A -120000. B-130000
Trade payables
A-11000. B-40000
A acquired b on 30 june
A sold some goods to b on credit on 28 February ( pre acquisition) of 20000
Still no payment is done regarding this
Will we cancel current accounts in above scenario

[krrish123456]

Thanks sir…but if we use operating profit shouldn’t we exclude non operating income(like dividend received or investment income)? As operating is calculated after which we record other income and finance charge …so shouldn’t we use operating profit only

Considering your reply my interpretation is for calculating operating profit /margin net profit margin/interest cover we use operating profit + other income.

[krrish123456]

Sir but irrecoverable debts are not included in list of receivables so shouldn’t we subtract 1500 from 107550 and then show 1500 on credit side? As we used 107550 from memorandum and it didn’t included 1500…so we should subtract 1500 from 107550 ?
So on debit side 98425 will come
On credit side 192240+ 1500 +106050 will come and final balance of credit sale
201365?

[Author]

Posts