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1. Pedantic acquires Sophistic .
Sophistic’s trade receivables at 30 September 2008 include $600,000 due from Pedantic which did not agree with Pedantic’s corresponding trade payable. This was due to cash in transit of $200,000 from Pedantic to
Sophistic.2. Parentis acquire Offspring
Offspring ’s trade payable account (in the records of Parentis) of $7 million does not agree with Parentis’s trade receivable account (in the records of Offspring) due to cash in transit of $4 million paid by Parentis.Why in (1) we don’t net off 600,000 intra group trading but make a double entry like this
Dr Cash 200
Dr Payable 200
Cr Receivable 600But in (2), we net off 7000 intragroup for both Receivable and Payable
Cr Receivable 7,000
Dr Payable 7,000
Dr Cash 400
Cr Receivable 400Hmmm – have you considered your first double entry in Pedantic / Sophistic?
What you should have written is Dr Cash 200, Cr Receivables 200 in Sophistic’s records and then
reduce payables 400 and reduce receivables 400 when adding across for the consolidated position
Are you saying that I haven’t done that?
Thank you for your utmost respond, however, I just don’t understand in (2), why cash-in-transit does not reduce payable by 3,000 as in (1)?
Because the company making the payment has already put through in their records the entry Debit Payables, Credit Cash
When the cash is received by the receiving company, they will record it as Debit Cash and Credit Receivables
In neither set of records is Payables affected (it IS when the in transit item is goods, but not if it’s cash)
“why cash-in-transit does not reduce payable by 3,000 as in (1)?” – your double entry in (1) makes no sense at all – it doesn’t even balance. Forget your double entry as you have written it – the double entry shown in my original response is CORRECT – that’s the one you need to understand
OK?
Ok I got it. Thank you so much for your great support, tomorrow I will sit in F7 exam so your help means a lot to me.
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