Xtol Co BPP Adj 1

This topic has 1 reply, 2 voices, and was last updated 1 year ago by f6ali.

Viewing 2 posts - 1 through 2 (of 2 total)

Author
Posts
November 17, 2021 at 5:32 pm #640918
kinza1997
Participant
- Topics: 16
- Replies: 18
Hi
please help me with the following:
Revenue includes an amount of $20 m for cash sales made through Xtol retail outlet during the year on behalf of Francais who is acting as an agent and is entitled to a commission of 10% of selling price of the goods.By 31 March 20×4 Xtol Co had remitted to Francais $15 m of the $20 m and recorded this amount in cost of sales.
i only understood the commission received. CR other income of $2000
the solution is to
DR revenue 20000
CR COS 15000
CR other income 2000
CR Trade payable 3000
November 18, 2021 at 1:42 pm #640973
f6ali
Member
- Topics: 10
- Replies: 342
Hi.
The question clearly states that it is Xtol which is the agent:
“Xtol, acting as agent, is entitled to a commission of 10% of the selling price of these goods.”
So Xtol could only record an income amount equal to 10% of the sale made on behalf of Francais. So, when the cash of $20m was received, Xtol could only record commission as its other income while the remaining amount would be a liability (to be transferred to Francais).
Following entries should have been made:
Dr Cash $20m
Cr Other income $2m
Cr Trade payable (Francais) $18m
And when cash was eventually transferred to Francais, the entry should have been
Dr Trade payable (Francais) $xx
Cr Cash $xx
Instead, Xtol recorded the full amount as its own revenue, i.e.
Dr Cash $20m
Cr Revenue $20m
and when $15m was remitted to Francais, this was recorded as Cost of Sales i.e.
Dr Cost of Sales $15m
Cr Cash $15m
In summary:
revenue is overstated by $20m
Cost of Sales is overstated by $15m
No entry is made for either Commission income or Trade payable (Francais).
I hope you can do the rest of the answer yourself.
Author
Posts

Viewing 2 posts - 1 through 2 (of 2 total)

You must be logged in to reply to this topic.