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the question has been taken from becker test page number 68
Trial balance at 31 march 2017.
RE at 1 april 2016-12300
31 march-96700dexon profit or loss includes $7.8 milionof revenue for credit sales made in march. dexon applied a mark-up on cost of 30% on all sales.In april the auditors stated that the contract does not have commercial substance and revenue should not be recognised for this contract
debit revenue-7800
credit cost of sales-6000
credit trade payable-1800but we deduct 1800 from 96700
did i give double enrty correctly?
Because $1,800 is the profit element in a $7.8 million sale where the mark-up is 30%
We need to reduce Revenue and reduce Receivables
Dr Revenue $7.8 million
Cr Receivables $7.8 millionand we need to increase closing inventory by $6 million that has the dual effect of reducing cost of sales (therefore increasing profit) and increasing closing inventory by $6 million on the statement of financial position
Heaven alone knows why you should wish to increase trade payables …”credit trade payable-1800″!
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