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pedantic- dec 08

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › pedantic- dec 08

  • This topic has 1 reply, 2 voices, and was last updated 6 years ago by P2-D2.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • October 21, 2018 at 8:42 am #479347
    adarsh1997
    Participant
    • Topics: 646
    • Replies: 282
    • ☆☆☆☆

    Hello Chris,

    Need your help to tackle the following question.

    Current assets:
    Pedantic(parent):$16000
    Sophistic: $6600

    Sophistic’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)
    ––––––
    21,400

    2. 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 #479406
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7163
    • ☆☆☆☆☆

    Hi,

    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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    Posts
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