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- May 11, 2017 at 8:28 pm #385889
I am having the most difficult time with this question! Would be great if I can get some guidance! Question is from the BBP 2015 exam kit, question 14.1
It gives a list of items from a trial balance and asks to prepare a SPL. I have absolutely no idea how they arrived at the figure 84,561 for purchases?
Trial balance as at 31 May 2016:
Sales CR 138,078
Purchases DB 82,350
Carriage DB 5,144
Drawings DB 7,800
Rent and insurance DB 6,622
Postage and stationary DB 3,001
Advertising DB 1,330
Salaries and wages DB 26,420
Irrecoverable debts DB 877
Allowance for receivables CR 130
Receivables DB 12,120
Payables CR 6,471
Cash on hand DB 177
Cash at bank DB 1,002
Inventory as at 1 Jun 2015 DB 11,927
Equipment at cost DB 58,000
Accumulated depreciation CR 19,000
Capital CR 53,091The following additional information as at 31 May 20X6 is available.
1. Rent is accrued by $210
2. Insurance has been prepaid by $880
3. $2,211 of carriage represents carriage inwards on purchases
4. Equipment is to be depreciated at 15% per annum using the straight-line method
5. The allowance for receivables is to be increased by $40
6. Inventory at the close of business has been valued at $13,551Prepare a statement of profit or loss for the year ended 31 May 2016.
I understand everything except how they arrived at purchases of 84,561 in the answers. I’ve tried various combinations of what seems to be part of purchases (on credit) but nothing is adding up.
May 11, 2017 at 8:31 pm #385890Sorry, I also have another question. Why would an increase in allowance for receivables be included as an expense, but not allowance for receivables?
May 12, 2017 at 7:02 am #385927The purchases figure is the 82,350 on the trial balance, plus the carriage inwards of 2,211. (Carriage inwards is the cost of delivery of materials into the business from the supplier, and effectively increases the cost of the goods).
The allowance for receivables appears on the SOFP as a reduction from receivables – it is only the increase that is an expense.
I do suggest that you watch my free lectures – they are a complete free course for Paper F3 and cover everything needed to be able to pass the exam well.
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