[tenjinsmith]

Could someone please say what topics came up in questions 4 and 5?
Thanks.

[tenjinsmith]

You’ll need to be a bit more specific.

[tenjinsmith]

<cite> @jawong said:</cite>
Tenjinsmith

Wouldn’t you only make an allowance for the 60% of the 1600 at the beginning?

No – the purpose of the first part of the calculation is to calculate how much of the total receivables balance needs to be included in the general allowance calculation.

When you are calculating an allowance for receivables, a trade receivable balance is reviewed for inclusion in the allowance either specifically or generally but not both.

So, the 1,600 is reviewed as a specific allowance only, therefore excluded from the general allowance calculation.

[tenjinsmith]

Computer 890
Additional memory 95
Delivery 10
Installation 20

Total to be capitalised = 1,015

If the purchaser is registered for sales tax, the sales tax is not capitalised.

If the purchaser is not registered for sales tax, the sales tax would be capitalised – but that is not the case in this question.

The tax is borne by the consumer who is not registered for sales tax.

[tenjinsmith]

This question required understanding of the accounting equation as follows:

assets = liabilities + equity

=> noncurrent assets (NCA) + current assets (CA) = noncurrent liabilities (NCL) +current liabilities + share capital (SC) + retained earnings (RE)

=> NCA + bank + other CA = NCL + CL + SC + RE

=> NCA + bank +(other CA – CL) = NCL + SC + RE

=> NCA + bank + other net current assets = NCL + SC + RE

The accounting equation applies at all times so if there are movements in assets, there must be corresponding movements in equity and/or liabilities. The question provides sufficient information about movements in all items in the equation except for the movement in retained earnings (which of course would correspond to the profit or loss for the year)

Plugging in the numbers:

100 + 750 + 575 = -750 + 1,000 + RE

Solving the equation for the movement in RE (profit for the year) gives a result of 1,175.

In summary, the movement in the bank account must be considered with all other known movements in assets, liabilities and equity to figure out the bit of information that was not provided in the question, i.e. the profit for the year. Knowledge and understanding of the accounting equation would enable you to figure out the profit for the year.

[tenjinsmith]

Bank increases by $750
Other net current assets increase by $575
Noncurrent assets increase by $100

Total increase in noncurrent and net current assets $1,425

Share capital increases by $ 1,000
Loan note decreases by $ (750)
Excluding profit or loss for the year, net increase in equity and loans $250

Profit for the year is difference between 1,425 and 250 = 1,175.

[Author]

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