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Need help Dear tutors/teachers.
The following additional information as at 30 Sep 2018 is available:
(a) Inventory as at the close of business has been valued at cost at 69,200.This inventory valuation includes some inventory costing of $8,000 and NRV $6,000.
(b) Wages and salaries need to be accrued by $1,500.
(c) Other operating expenses are prepaid by $880.
(d) A credit controller advised you to create specific allowance by 10% for Mrs. Jane owed
$15,000 to Mr. Brown Hash. Then, the general allowance for receivable is to be adjusted so that 1% of the remaining trade receivables.(e) Depreciation for the year ended 30 September 2018 has still to be charged as follows:
Property A: 5% per annum using the straight line method
Equipment Z: 20% per annum using the reducing balance method(f) Mr.Brown has sold goods by $1,000 on sale and return basis on credit term. These goods have cost of $800. The customer has not sold these goods to third parties yet.
Required:
1. Do all necessary workings and adjustments?
2. Prepare Mr. Brown Hash`s statement of profit or loss for the year ended 30 September 2018.
3. Prepare Mr. Brown Hash`s statement of financial position as at 30 September 2018.MR. BROWN HASH
TRIAL BALANCE AS AT 30 SEPTEMBER 2018
Property, at cost DR-150,000
Equipment, at cost DR- 90,000
Accumulated depreciation (as at 1 October 2017)
-on property CR-22,500
-on equipment CR-18,000
Purchases. DR-252,000
Revenue. CR-457,000
Inventory, as at 1 October 2017. DR-58,000
Discounts received. CR-3,900
Return out. CR-10,000
Wages & salaries. DR-62,000
Loan interest. DR-5,000
Other operating expenses. DR-19,880
Trade payables CR-63,000
Trade receivables DR-49,000
Cash in hand. DR-2,200
Bank. DR-49,000
Drawings. DR-25,000
Allowance for receivables. CR-750
10% long-term loan. CR-50,000
Capital as at 1 October 2017 CR-136,930
DR-762,080. CR-762,080.Sorry, we don’t do whole questions for students. You need to go through each of the pieces of information (a) to (f) and make appropriate adjustments to the trial balance. ensuring you maintain double entry.
For example: (b) Dr Wages and salaries1,500, Cr Accruals 1,500 (open a new account for that and that account will appear in the SOFP.
Similarly: (e), Property A, Dr Depreciation expense 150,000 x 5% (a new account needed) Cr Accumulated depreciation on property 150,000 x 5%
I am more stuck at question (f). Should I include 800$ or not. When I include $1,000 sold goods, the Financial Position statement is balanced with $345890 without $800 included.
The question was:
(f) Mr.Brown has sold goods by $1,000 on sale and return basis on credit term. These goods have cost of $800. The customer has not sold these goods to third parties yet.How will this journal be written?
Goods on Sor are should not be counted as sales until sold to the ‘final’ customer. Until then they are simply goods at someone else’s premises and should be included in inventory. To do that the required journal is:
Dr Closing inventory
Cr Cost of sales
So the price included will be $1000 and not $800, right? Why will $800 not be included?
No. $1,000 is the sale price and the goods have NOT been sold. They have to included in inventory at the lower of cost and net realisable value is the lower of 800 and 1000. Therefore, they will be inventory at $800.
Then It will be adjusted in SOPL:
DR Closing Inventory. $1800
CR Cost of sales. $1800and for SOFP:
DR inventory $800
CR SOPL. $800 ?????” Mr.Brown has sold goods by $1,000 on sale and return basis on credit term. These goods have cost of $800. The customer has not sold these goods to third parties yet.”
When goods are ‘sold’ on sale or return they are not actually sold: they are just moved to someone else’s premises. There should normally be be no Dr/Cr entry anywhere in teh double entry system though there will be memorandum accounts so that the business can keep track of where goods are.
If in the example given, the company had initially Dr Receivables 1000, Cr Sales 1000, then this will need to be reversed at year end, so Dr Sales 1000, Cr Receivables 1000
The goods then have to be recognised in inventory so Dr Closing stock 800 Cr cost of sales 800
About Question d :
(d) A credit controller advised you to create specific allowance by 10% for Mrs. Jane owed
$15,000 to Mr. Brown Hash. Then, the general allowance for receivable is to be adjusted so that 1% of the remaining trade receivables.Will it be written like this:
General allowance ((49,000-15,000)*1%) – 340
Specific allowance (15,000*10%) – 1,500
Total allowance for receivables – 1,840
Income and expense-receivables expense – 1,840SOPL – Receivables expense – (1,840)
SOFP – Allowance for receivables – 1,090Almost right, but your last two lines are not a double entry where Dr = Cr.
1840 is the figure you want to end up with in the Allowance for receivables account. There is already 750 there so another 1090 is needed.
Cr Allowance for receivables account 1090 (so that 1840 will be part of the SOFP).
Dr Receivables expense 1090 (the cost of increasing allowance, appearing in the SOPL)
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