- This topic has 3 replies, 2 voices, and was last updated 3 years ago by
.
- Posts
X-men Company operating in manufacturing sector has its fiscal ended 31 December and monthly depreciation policy.On February 1 2016, X-men company started to build a new warehouse. The accountant recorded all the cost of $240m at that date to Tangible Non-current assets account, and started to depreciate it from this date with the rate of 5% per annual. On June 30 2016, X-men made punishment with an amount of $15m to supplier due to lateness in construction; the accountant recorded it as other income. This new warehouse was completed and used from July 1, 2016
If no adjustment entry made, the following consequence with BS ending date 31 December2015?
A. FA (net) was overstated by $15
B. FA (net) was understated by $5
C. FA (net) was overstated by $14,313
D. FA (net) was overstated by $9,625Why are. you attempting a question for which you do not have an answer? You should be using a Revision Kit from one of the ACCA Approved Publishers – they have answers and explanations!
Either you have copied the dates wrong or there is a typing error in the question because there is no effect at the 31 December 2015 because there was no asset at that date!!!
However, at 31 December 2016 there is an affect.
At the moment the building will appear as $240m less 11 months depreciation on $240m.The punishment has been recorded as other income, but should have been subtracted from the amount recorded as being the cost of the building. So the cost should appear as $15m lower.
Also the deprecation should have been calculated on 240 – 15 rather than on 240.Therefore in the SOFP (we stopped calling it the Balance Sheet many years ago!), the cost should be lower by $15, and the depreciation should be lower by 11/12 x 5% x $15m = $0.6875.
Therefore the net non-current assets (we stopped calling them fixed assets many years ago!) should be lower by 15 – 0.6875 = $14,313.
Until the adjustment is made, the non-current assets are therefore overstated by this amount.
Yes it seemed like I have copied the the wrong dates. I got it now. Thank you so much for putting your precious time to help me Mr.John!
- The topic ‘I’m having trouble with this one. I’m grateful for the help!’ is closed to new replies.