Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › pedantic- dec 08
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- October 21, 2018 at 8:42 am #479347
Hello Chris,
Need your help to tackle the following question.
Current assets:
Pedantic(parent):$16000
Sophistic: $6600Sophistic’s trade receivables at 30 September 2008 include $600,000 due from
Pedantic which did not agree with Pedantic’s corresponding trade payable. This was
due to cash in transit of $200,000 from Pedantic to Sophistic. Both companies have
positive bank balances.1.(a)The answer/ working as per the book:
Current assets
$000
Pedantic 16,000
Sophistic 6,600
PURP in inventory (800)
Cash in transit 200
Intra-group balance (600)
––––––
21,4002. My issue:
(a). Could you explain why for current assets, $200 has not been deducted from receivables? The double entry of the cash in transit is DR Cash and CR receivables, therefore the final balance should be $21,200.Thanks in advance
October 21, 2018 at 9:33 pm #479406Hi,
Your understanding of the cash in transit treatment is correct, in that you DR Bank CR Receivable with the value of the cash in transit. However, you then need to remove the intra group balance, which will now be at $400,000. So to do this we DR Payable CR Receivable with the $400,000.
If you total the $400,000 and $200,000 entries to receivable then this gives the $600,000 adjustment in the answer. So to answer your question, they have deducted the $200,000 from the receivables balance but it isn’t obvious from the way they’ve structured their answer.
Hope that clears it up.
Thanks
Chris
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