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Dear Tutor
I don’t understand why the answer says ” bothe curent assets and current liabilities are overstted”. I understand the liability overstated becasue prepayment for the non-obliged obligation, but where it mentioned current assets? is it from the scenario states “the company is planning on buying new machinery”?
Many thanks
Last sentence of Exhibit 4:
“This amount has been provided for within current liabilities, with a corresponding entry accounted for as a prepayment.”i.e. company has Dr Prepayment (a current asset)/Cr Current liabilities
It doesn’t matter that when the machinery is bought there should be Dr PPE – it’s the incorrect entries that have been made that must be corrected.
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