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The draft statement of the financial position shown below has been prepared for Shuswap, a limited liability company, as at 31 December 20X4:
Assets Cost Accumulated Carrying Amount
‘000 Depreciation ‘000 ‘000
Non-current assets:
Land and buildings 9000 1000 8000
Plant and equipment 21000 9000 12000Current assets:
Inventories – 3000
Receivables – 2600
Cash at bank – 1900
Total assets – 27500Equity and liabilities
Equity
Issued share capital (ordinary shares of 50c each) – 6000
Retained earnings – 12400Non-current liabilities
Loan notes (redeemable 20Y0) – 2000Current liabilities
Trade payables – 2100
Total – 22500Suspense Account – 5000
27500
The suspense account is made up of two items: (1) The proceeds of the issue of 4,000,000 50c shares at $1.10 per share, credited to the suspense account from the cash book. (2) The balance of the account is the proceeds of sale of some plant on 1 January 20X4 with a carrying amount at the date of sale of $700,000 and which had originally cost $1,400,000. No other accounting entries have yet been made for the disposal apart from the cash book entry for the receipt of the proceeds. Depreciation on plant has been charged at 25% (straight line basis) in preparing the draft statement of financial position without allowing for the sale. The depreciation for the year relating to the plant sold should be adjusted for in full.
A year-end journal to clear the suspense account is given below. Required
(a) Prepare the double entry by selecting the correct option for each row. (Use the information given under Task 2 to help you.)Issued share capital
Share premium
Cash Plant and equipment – cost
Plant and equipment – disposal account
Suspense accountThe correct answers are:
• Issued share capital – Debit
• Share premium – Debit
• Cash – Neither DEBIT nor CREDIT •
Plant and equipment – cost – Neither DEBIT nor CREDIT
• Plant and equipment – disposal Account – Debit
• Suspense account – CreditThe suspense account had been credited with the proceeds of the share issue. To clear
the suspense account, the suspense account will be debited with a corresponding credit to share capital and share premium.
The suspense account also has a debit in respect of the sale of the plant. Therefore, a credit is made to the disposal account to correctly record the sale of the plant with the corresponding debit to the suspense account to remove the original entry.
The cash and plant and equipment – cost accounts do not require adjustment.I couldn’t understand the above explanation. Can you please help me to understand this Journal and how did it happen?
I assume that you have watched all of our free lectures, and therefore you will be happy that the correct entry for the issue of shares should have been Debit cash 4,400,000; Credit share capital 2,000,000; and Credit Share premium 2,400,000.
However the question says that they have Debited cash with 4,400,000 and Credited the suspense account with 4,400,000.
So to correct it (as explained in our free lectures on suspense accounts) they need to Debit the suspense account 4,400,00 (to remove the amount that should not be there) and Credit Share capital 2,000,000, and Credit share premium 2,400,000 (which is where the entries should have been made).
The remaining 600,000 on the suspense account is because they had debited cash and credited suspense account with the proceeds of sale. The correct entry should have been to debit cash and credit the disposal account. So to put things right they need to debit the suspense account (to remove the balance that should not be there) and credit the disposal account (which is where it should have been entered).
So it means the answers given above is not true right? because according to your explanation and my understandings the correct answer should be:
• Issued share capital – Crebit
• Share premium – Crebit
• Cash – Neither DEBIT nor CREDIT
• Plant and equipment – cost – Neither DEBIT nor CREDIT
• Plant and equipment – disposal Account – Credit
• Suspense account – Debit
Am I correct? thank you so much!
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