passpaper

“why 900 of bank is added in current asset bank is it not intra group”

How can a bank account be intra-group?

When we have cash- or goods-in-transit, the technique is to accelerate the in-transit item into the records of the receiving entity

So when we find out that there is $900,000 cash on its way from Strata, we make the adjustment on the face of the question, in Paradigm’s records:

Dr Cash $900,000
Cr Receivables (Strata Current Account) $900,000

Now when you look at the “Bank” line in Paradigm’s records, you see “Bank 2,100 + 900” and that comes to $3,000

The current accounts:

In Strata’s records, the question tells us, they are showing an amount owing to Paradigm of $2,800,000 but that doesn’t agree with Paradigm’s records because …

… of the Cash-in-transit $900,000

Strata will have recorded this payment on the date that the payment was sent, but, of course, Paradigm doesn’t know about the payment until it’s actually received

But we know!

And in the first part of this post, we have made the adjusting entry in Paradigm’s records:

Dr Cash $900,000
Cr Receivables (Strata Current Account) $900,000

and now the intra-group current accounts are reconciled

So if the amount included in Paradigm’s Receivables included an amount of $2,800,000 and we’ve just credited that figure with $900,000, then the revised figure ( that now agrees with Strata’s records) must be $1,900,000

In summary, the adjustments, that you must show on the face of the question paper as well as in your answer booklet, are:

Dr Cash $900,000
Cr Receivables $900,000
Cr Receivables $1,900,000
Dr Payables $1,900,000

So Receivables decrease by $2,800,000
Payables decrease by $1,900,000 and
Cash increases by $900,000

Better?