Hi Mr. Mike Little,
May I ask you for a clarification re the Cash-in-Transit treatment when doing consolidation?
This specifically relates to Q1 Jun 2013 and Q3 Dec 2014. From the look of it both seems display the similar scenario:
Parent sells goods to Subsidiary; Both shows bank overdraft, but why for Jun 2013 Q1 question, the treat of CIT is to add the amount to bank in asset account; whilst for Dec 2014 Dec one, the treat of CIT is reduce the bank overdraft account?
Could you show me how one is differenciating from the other? I'm rather confused here.
Thank you.
Ask the Tutor ACCA FR
Different treat of CIT with same scenario between Q1 Jun 2013 & Q3 Dec 2014
It depends which company has a positive and which has a negative bank account.
If a company has a bank overdraft and cash in transit is about to be received, surely that will reduce the overdraft
But if a company has money in the bank and cash is due to be received, that will increase the positive bank balance
The thing to remember is that we accelerate the in transit items into the records of the receiving company
Does that make it any clearer?
Yes, now it makes sense. Thank you.
You're welcome
Hello sir!
I am confused on dec 2014 qn no 3 note 4.
In this qn I think its cash in transit,so can you please help with step by step explanation regarding how to deal with it in consolidated SFP.
Thank you.
PLEASE!!!! DO NOT POST YOUR QUESTIONS MULTIPLE TIMES!!
:-(((
Here is the answer that I have given to you in your Recent Posts question
Open two T Accounts
The first is in Plastik’s records and is called Receivables Account and it includes an amount of $1,200,000 receivable from Subtrak
The second is in Subtrak’s records and is called Payables Account and includes an unknown amount payable to Plastik
However, we ARE told that there is $400,000 in transit from Subtrak to Plastik, so let’s record that
When we accelerate that cash into Plastik’s records, we shall Dr Cash (or, in this case, Dr Overdraft) and Cr Receivables Account with $400,000
The Receivables line now looks like:
$4,700,000 – $400,000 + $2,500,000
And the Overdraft line looks like $1,700,000 – $400,000
And now the Receivable from Subtrak in Plastik’s records shows an amount of $1,200,000 – $400,000 = $800,000 and the Current Accounts reconcile so we can cancel that $800,000 from both Receivables and Payables
Now the Receivables line looks like:
$4,700,000 – $400,000 – $800,000 + $2,500,000 = $6,000,000
The overdraft line looks like:
$1,700,000 – $400,000 = $1,300,000 and
the Payables line looks like:
$3,400,000 + $3,600,000 – $800,000 = $6,200,000
OK?
Reply
I think there was an error sending qns multiple times. I'm so sorry for that.
But anyways thank you so much sir. Your explanations really helped.
You're welcome (and no harm done about the multiple posts. But please, in future, try to avoid such errors!)
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