[Nishan]

I am afraid sir, I still have some doubt.

Below is the definition given in ISA 706 (revised) for other matter paragraph:

Para 7:
For purposes of the ISAs, the following terms have the meanings attributed below:

(a) Emphasis of Matter paragraph – A paragraph included in the auditor’s report that refers to a matter appropriately presented or disclosed in the financial statements that, in the auditor’s judgment, is of such importance that it is fundamental to users’ understanding of the financial statements.

(b) Other Matter paragraph – A paragraph included in the auditor’s report that refers to a matter other than those presented or disclosed in the financial statements that, in the auditor’s judgment, is relevant to users’ understanding of the audit, the auditor’s responsibilities or the auditor’s report.

Which is the same as the question right?

Further down, Para A15 states this:

The content of an Other Matter paragraph reflects clearly that such other matter is not required to be presented and disclosed in the financial statements. An Other Matter paragraph does not include information that the auditor is prohibited from providing by law, regulation or other professional standards, for example, ethical standards relating to confidentiality of information. An Other Matter paragraph also does not include information that is required to be provided by management.

Hence I believe for the given question question the answer would be (C) An other matters paragraph would be included.

[Nishan]

https://www.accaglobal.com/gb/en/student/acca-qual-student-journey/qual-resource/acca-qualification/f1/syllabus-study-guide.html

[Nishan]

You are welcome in deed..
I thought you would have done your exam by now…?

[Nishan]

It says “discount received column of the cash payments book” 🙂
Cash book is the book of prime entry for Discounts.
Total of dicounts columns are used to post to ledgers.
Discount received column total will be posted to DR – PLC a/c, CR – Dis. Received a/c. So even if the column total is wrong, debit and credit is still matching, so no imbalance of TB. The error would need to be corrected though.

[Nishan]

🙂

[Nishan]

For the second one, you are correct to debit asset and maintenance by 400 and suspense credit by 800.

[Nishan]

Hi Archana,

Computer purchased for 3500.. the double entry would be:
Dr: Computer 3500
Cr: Cash 3500
But, according to question, what they did was;
Dr: Computer 350
Cr: Cash 3500
Which means the error was made debiting Computer (i.e. amount less by 3150) and credit was ok. So your 2nd answer is wrong and first answer is correct. As debit Computer is less by 3150, we will debit 3150 Compter more by 3150 and credit Suspense account

[Nishan]

Sir, could I further ask about ordinary dividend.

I know that interim ordinary dividend paid is adjusted in SOCIE.

Ordinary dividend proposed and declared after the year end, (before finalising of accounts) are non adjusting events, unless the the dividend was approved by shareholders. Proposed or declared but unapproved dividends would be disclosed in the notes. Any such dividends approved would be deducted in SOCIE and accrued in SoFP. Am I on the right track so far here?

If in a question they just say dividend declared before the year end (but doesnt give any info if they are approved or not and no info about finalasing accounts)..
Do I deduct that dividend in SOCIE and Accrue it as a liability?

[Nishan]

@dizzycats said:
DR: Building (Asset) $ 1,800,000
CR: Revaluation Reserve (Equity) $ 1,800,000
(Being revaluation of asset)

Dizzy Cats,..

Wouldn’t the double entry be like:

Dr: Building 1,200,000
Dr: Accumulated Dep 600,000
Cr: Revaluation Reserve 1,800,000

Revaluation gain amount of 1,800,000 is arrived by deducting the revalued amount of 3,600.000 from NBV of 1,800,000 = 1,800,000 Revaluation gain.

It can also be calculated as 3,600,000 – 2,400,000 (being the cost difference) plus the accumulated depreciation of 600,000 = 1,800,000

Debiting the Asset account with 1,800,000 would increase the asset balance to 2,400,000 + 1,800,000 = 4,200,000 and I believe that is wrong!

[Nishan]

Sir,
Could you explain more about redeemable and irredeemable preference shares..

If its redeemable preference shares, does the dividend appear as an expense under finance charge, smilar to loan notes? And the redeemable preference share appear as non-current liabilities, not under equity?

Do the irredeemable preference shares appear under equity? And its dividend in SOCIE?

If in a question they simply say preference shares which treatment should I choose?

[Nishan]

I think they are the same or at least, related. Let me try and explain 🙂

These two equation are based on the Basic Accounting Equation:

Asset = Capital + Liabilities

It can be re-arranged as Capital = Asset – Liabilities

We also know that: Net Assets = Assets – Liablities

Hence we can say: Capital = Net Assets

Hope that helps 🙂

[Nishan]

Thank you for the appreciation Sir 😀

[Nishan]

In the first question, the financial year is 1 July 2000 to 30 June 2001. Among the the list of payments, the last payment made this year was on 30 June 2001 (which is also the year end) covering until 30 April 2001 indicating that during this year May and June payments were accrued. They were paid in next year which is indicated by the last payment on the list which was made on 1 August 2001, which falls out the current financial year. So May, June payments 840 x 2/3 = 560 was accrued.

For the P&L it will be Payments made during this year 600+720+900+840=3060 plus closing accrual of (from above) minus opening accrual:
3060+560-300=3320

[Nishan]

If an expense relating to that year is not paid, it should be included in SOFP as a liability.

[Nishan]

1: 400 x 4 = 1600 cost is higher than the NRV of (400 x 3) – 200 = 1000
2:2200 x 30 = 6000 cost is higher than the NRV of 200 x 35 – 1200 – 300 = 5500

So in both cases we have to use NRV.

Note that the amount of 116400 is not including these two items. So this time we will not need to deduct the cost and then add NRV. (In earlier question it was given including the cost.) So we will just add NRV as NRV is lower in both cases.

So answer will be:
116400 + 1000 + 5500 = 122900

[Nishan]

Ques-2

According to IAS 2, inventory must be valued at lower of cost and net realisabe value.

So in the two points given, we have to see if the NRV is lower than the cost at which they are valued at.

1:
400 x 80 = 32000 is cost
Due to the defect in the products they were sold at 50% less than the normal selling price. So now the selling price will be 150 x 0.5 = 75 / coat
Selling expenses amounted to 5 % of proceeds, hence: 75 x 0.05 = 3.75 / coat
So NRV (which is selling price – selling expenses) for the 400 coats will be:
400 (75 – 3.75) = 28,500
NRV is lower than the cost, so they should be adjusted.

2:
NRV ( [28-5-1] x 800 = 17,600 is higher than the cost of 20 x 800 = 16,000. So this one doesn’t need adjustment.

So the answer would be:
284700 – 32000 + 28500 = 281200

[Nishan]

It says rent is charged in arrears at the end of February, May, August and November.

That means that rent for December, January and February will be charged end of February next year, and the accountant forgot to charge rent for December this year. In other word, December rent for this year is accrued. February bill is expected to be 30,000. So an accrual of 30,000/3 = 10,000 for December should be made.

Accrued expenses increase expense for the year, hence reducing profit for the year and..
Accrued expenses also increase( or create) current liability, reducing net assets.
The double entry will be :
Rent Expense(p&l) – Dr
Rent Accrued(sfp) – Cr

Hence the answer would be:
25,000 – 10,000 = 15,000 profit for the year
275,000 – 10,000 = 265,000 net assets.

[Nishan]

Glad I can help.. 🙂

[Nishan]

NCA Cost account doesn’t include depreciation.

But when we do Carrying Value or Net Book Value accounts, we need to deduct it. CV(NBV) is arrived at after deducting Accumulated depreciation from the Cost.

The opening 200,000 indicates the CV balance after deducting previous year’s accumulated depreciation. So this years depreciation has to be deducted to arrive at the closing CV balance for this year.

[Nishan]

It could be any way. Can be 2005 or 2015 or 2025. When it’s given like 20W4, 20W5… you need to realise that it’s just one year after the other, like 2004, 2005 or 2014, 2015.(In both it’s ‘W’ and 4 or 5. So it’s just one year after the other.)

If given like 20X4, 20Y5 it means like 2004, 2015. (In this case it’s ‘X’ and ‘Y’. So if I assume X is 0, then Y (which is after X) should be assumed as 1 (which is after 0).

I came across such dates when I did BPP practice kit.

Since John sir mentioned that in exams they will only give proper dates, we need not worry about it at all 🙂

[Nishan]

Receivables should be inclusive of sales tax.

In this situation we are making a sale of 500 on which sales tax of 75 is charged. The person who is buying (i.e our Receivable) would need to pay us 500 for the good and also he would have to bare the tax of 75 as well.
For us, the sales value is only 500 and 75 tax we are collecting would be paid to the tax authority.

∴The double entry would be:
..Receivables – Dr 575
…… Sale…………. – Cr 500
…… Sales tax…… – Cr 75

[Nishan]

Sales day book is record to credit sales only and Purchases day book is to record credit purchases only.

Cash sales and Cash purchases will be recorded in the Cash book.
Note that Cash book is the book of prime entry for all the cash purchases and sales and also discounts allowed and discounts received.

[Nishan]

My bad,.. You posted the answer just before me.. 🙂

But Sir,

is it 418, 375 + 7300 or 418,375 + 8,030??
7,300 is the cost of sales for the sale of 8,030 .. right?

[Nishan]

I haven’t come across such a question until now, but I will try 😉

We can calculate the cost of sale for the sale of 8,030 using 10% mark up given. That will be:
8,030 x 100/110 = 7,300

When we eliminate that portion of cost of sale from the total cost of sales Bob calculated for the year, we get cost of sale for the remaining sales. That will be:
342,000 – 7,300 = 334,700

We can then use this amount and 20% margin given to find the remaining sales. That would be:
334,700 x 100/80 = 418,375.

So, finally, total sales for the year will be:
418,375 + 8,030 = 426,405

John Sir:
Please confirm if this answer is correct or wrong.

[Nishan]

Before I answer this question, I assume when you mentioned… Their depreciation policy is to “change” … I believe you mean… “charge” 20% reducing balance…

The financial year is 1 Feb – 31 Jan
Car bought on 1 Jan 08.. sold on 31 March 12
So if we look at the financial years we had the car and the years of depreciation to be charged:

1 Feb 07 – 31 Jan 08 – Year 1 ( Full depreciation to be charged for this year even though we owned the Car for Just one month ( January 2008 ) of this year )
1 Feb 08 – 31 Jan 09 – Year 2
1 Feb 09 – 31 Jan 10 – Year 3
1 Feb 10 – 31 Jan 11 – Year 4
1 Feb 11 – 31 Jan 12 – Year 5
1 Feb 12 – 31 Jan 13 – Year 6 ( No depreciation to be charged for the two months of Feb and March of 2013)
So the car would be depreciated for 5 years

Hence the NBV at the time of sale would be 12,000 x 0.8^5 = 3,932

Proceeds – NBV = Profit (Loss) on Disposal
∴ 5,000 – 3,932 = 1,068 profit on disposal

[Author]

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