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Dear Mike,
As per TB dated 31/3/13:
Inventory (at 31 March 2013) 43,700
Revenue 550,000
Trade receivables 42,200Additional info:
Revenue includes the sale of $10 million of maturing inventory made to Xpede on 1 October 2012. The cost of the goods at the date of sale was $7 million and Atlas has an option to repurchase these goods at any time within three years of the sale at a price of $10 million plus accrued interest from the date of sale at 10% per annum.
At 31 March 2013 the option had not been exercised, but it is highly likely that it will be before the date it lapses.My ans:
Since it is a substance loan, cancel 10 million sales by reducing REVENUE and RECEIVABLES by 10 million.
And show 10 Million substance loan as EXPENDITURE and LIABILITY. Also, ADD finance charge of 10% to this 10 million expense and liability.
Increase inventory and reduce cost of sale by 7million.
Is that right?
‘ and RECEIVABLES by 10 million.’ – why receivables????
What sort of a loan is it if the lender doesn’t let you have the money?
Dr Revenue and Credit Loan account
WHAT!
How can borrowing $10,000,000 be an expense?
Two ways of tackling this:
1) undo what they have done and the put through the correct entries
So undo:
Dr Revenue $10,000,000
Cr Cash $10,000,000Now put through the correct entries
Dr Cash $10,000,000
Cr 10% Loan account $10,000,000and bring the goods back into inventory
Dr Inventory on the statement of financial position $7,000,000
Cr Cost of sales $7,000,000Then, at the year end, account for the accrued interest
Dr Loan interest on statement of profit or loss $500,000
Cr 10% Loan account $500,000You need to sort out your thinking in the next few days!
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