Unit 3 Accounting - PRACTICE SAC2a 2014
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Unit 3 Accounting - PRACTICE SAC2a 2014 STUDENT NAME School ID SOLUTION PRAC SAC 2a Question 1 a. General Journal Date Details General Ledger Debit 30 June 30 June 30 June 30 June Cash Sales Credit Sales Discount Revenue Interest Revenue Profit & Loss Summary 360000 240000 3700 500 Profit & Loss Summary Advertising Buying expenses Cartage Inwards Cartage Outwards Cost of Sales Depreciation –Delivery Van Discount Expense Interest Expense Rent Expense Stock loss Wages Profit & Loss Summary Capital Capital Drawings 562 300 Credit Subsidiary Ledger Debit Credit 604200 4400 10000 5700 10000 400000 12800 4600 2000 24000 1600 87200 41 900 41 900 57000 57000 b. Profit & Loss Summary Date 30 June Cross-reference Expenses Capital Amount 562 300 41 900 604200 Date 30 June Cross-reference Revenues Amount 604200 604200 1 Unit 3 Accounting - PRACTICE SAC2a 2014 Capital Date 30-6-14 Cross-reference Drawings Balance Amount 57000 54 900 111 900 Date 1- 7-13 30-6-14 Cross-reference Balance P&L Summary 1-7-14 Balance Amount 70000 41 900 111 900 54 900 Drawings Date Cross-reference Bank Amount 57000 57000 Date 30-6-14 Cross-reference Capital Amount 57000 57000 c. Reason 1 Revenue & expense account only exist during a particular Reporting period and are then set to zero in preparation for the next reporting period Reason 2 They are closed off & transferred to the Profit & Loss Summary account in order to determine profit for the current Reporting Period Reason 3 Once profit or loss is calculated it is then transferred from the P&L Summary ledger account to the Capital account in order to update capital d. Explanation Asset accounts are carried forward as they are expected to result in a future economic benefit for the business. They are yet to be fully consumed and continue into future periods. Similarly, liabilities are carried forward as the settlement of the obligation is expected to result in an outflow of economic benefits in future periods. 2 Unit 3 Accounting - PRACTICE SAC2a 2014 Question 2 a. Calculation Existing Shelving HC x Rate = Depn p.a. 7 800 x 10% = 1080 780 x 3/12 = 195 New Shelving HC x Rate = Depn p.a. 3000 x 10% = 300 300 x 1/12 = 25 Depreciation Expense – Shelving $220 b. General Journal Date Details General Ledger Debit 30 Sept 30 Sept 30 Sept 30 Sept 30 Sept Depreciation - Shelving Acc. Depn - Shelving Rent Expense Prepaid Rent Expense Drawings Stock Control Electricity Expense Accrued Electricity Expense Stock Gain Stock Control Credit Subsidiary Ledger Debit Credit 220 220 4800 4800 500 500 400 400 200 200 Prepaid Rent at 30 June 2014 before adjustment = 11200. This is made up of $9600 for the prepayment in August AND the remainder of $1600 (11200 – 9600) which represents that part of the prepayment from the previous period that is yet to be consumed. THERFORE, $1600 prepaid from previous period & now consumed in July PLUS $ 3200 now consumed from the prepayment in August(9600/6 = 1600 per mth x 2 mths= 3200) = $4800 c. Explanation Net Profit would be overstated by $400 as the electricity expense would be understated as is has not been recognised in the current period. The electricity owing should have been recognised as an expense as it has been consumed in the current period even though it has not been paid. Both liabilities and owner’s equity would be affected in the Balance Sheet. Liabilities would be understated as Accrued Electricity expense has been understated by $400. The $400 represents a future obligation to pay Origin Energy for the electricity consumed. The owner’s equity would be overstated by $400 as electricity expense is understated overstating Net Profit by $400. REMEMBER--- the electricity was incurred in the current period and should have been recognised as an expense in the current period. 3 Unit 3 Accounting - PRACTICE SAC2a 2014 d. Rent Expense Date Cross-reference 2014 30 Sept Prepaid Rent Expense Amount 4800 4800 Date 2014 30 Sept Cross-reference P&L Summary Amount 4800 4800 Prepaid Rent Date 2014 1 July 31 Aug Balance Bank 1 Sept Balance Cross-reference Amount 1600 9600 11200 6400 Date 2014 30 Sept Cross-reference Rent Expense Balance Amount 4800 6400 11200 e. Depreciation Expense - Shelving Date Cross-reference 2014 30 Sept Acc. Depreciation Amount 220 220 Date 2014 30 Sept Cross-reference P&L Summary Amount 220 220 Accumulated Depreciation– Shelving Date 2014 30 Sept Cross-reference Balance Amount 4510 Date 2014 1 July 30 Sept Balance Depreciation Expense 1 Oct Balance Cross-reference 4510 Amount 4290 220 4510 4510 4 Unit 3 Accounting - PRACTICE SAC2a 2014 f. Justification --- Accounting Principle : REPORTING PERIOD Revenue should be recognised when earned rather than when the cash has been received. Also expenses should be recognised when incurred rather than when the cash has been paid. Therefore, on the last day of the Reporting period (balance day) adjustments are made to revenue and expense accounts to ensure an accurate profit is calculated by matching all revenue earned against all expenses incurred in the current period. ANY TWO EXAMPLES - the following should be included as an expense in order to calculate profit some of the rent paid in advance has now been consumed in the current period electricity owing has been incurred in the current period although it has not been paid some of the cost of the shelving has been used to help the business to earn revenue in the current period so it is recognised as depreciation expense g. Justification --- Qualitative Characteristic: RELEVANCE Revenue should be recognised when earned rather than when the cash has been received. Also expenses should be recognised when incurred rather than when the cash has been paid. Therefore, on the balance day (last day of the current period) adjustments are made to revenue and expense accounts so an accurate profit is calculated by matching all revenue earned against all expenses incurred in the current period as they are relevant to the current period. This ensures that all information that is useful for decision making has been included in the calculation of profit and information which is not useful (earned or incurred outside the current period) is excluded. ANY TWO EXAMPLES - the following are relevant to the current period & should be included as an expense as it is useful for the calculation of profit some of the rent paid in advance has now been consumed in the current period electricity owing has been incurred in the current period although it has not been paid some of the cost of the shelving has been used to help the business to earn revenue in the current period so it is recognised as depreciation expense h. Cash Payments Journal Date Details 2014 31 Oct Accrued Electricity Chq. No. 568 Bank Disc. Rev. Creditors Control Electricity 990 Expense Electricity 500 Wages Sundries GST 400 90 5 Unit 3 Accounting - PRACTICE SAC2a 2014 Question 3 a. General Journal Date Details General Ledger Debit 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar Bad Debts Debtors Control Debtor - Amy 2100 Discount Expense Discount Revenue Wages expense Bank 100 Stock Loss Stock Control 250 Credit Subsidiary Ledger Debit Credit 2100 2100 100 45 45 250 Creditor- Hairy Creditor- Hussien 200 200 Water expense GST Clearing Wages expense 400 40 Delivery Inwards Delivery Outwards 700 440 700 Question 4 a. Calculation – USING REDUCING BALANCE 1 Jan 2011 to 30 June 2011 = 24000 x 30% = 7200 7200/2 = 3600 Dep Exp for 1 July 2011 to 30 June 2012 = 24000 – 3600 = 20400 x .3 = 6120 Depreciation Expense – Equipment $6120 b. Explanation The carrying value represents the amount yet to be allocated as depreciation, plus any estimated residual value expected to be realised at the end of the asset’s useful life. Remember the carrying value is NOT the current market value of an asset---- as depreciation does not attempt to provide an estimate of market value. the purpose of depreciation is to allocate the cost of an asset (less residual value) over the reporting periods that represent the asset’s life --- this is done to help determine an accurate profit for each reporting period . 6 Unit 3 Accounting - PRACTICE SAC2a 2014 c. Calculation USING STRAIGHT-LINE METHOD HC – RV = Depn p.a. 4 24000 – 3000 = 5250 4 1 Jan 2011 to 30 June 2011 = 5250/2 1 July 2011 to 30 June 2012 1 July 2012 to 30 June 2013 HC 24000 – - =2625 = 5250 = 5250 Acc Dep = 2625+5250+5250= 13125 Acc Dep = Carrying Value 13125 = 10875 Carrying Value – Equipment $ 10875 d. Discussion Depreciation is used to calculate that part of the cost of the non-current asset that has been consumed to help the business to earn revenue in the current reporting period. It allocates or spreads the cost of the asset over its useful life or estimated years the asset will be used to earn revenue. Therefore, the method chosen should allocate the cost of the asset according to the expected revenueearning pattern of the asset. If the asset is expected to generate the same amount of revenue each reporting period, the straight line method should be adopted as it allocates the same amount of cost each reporting period. However, if the asset is expected to be more productive in its earlier years and therefore generate more revenue in those periods, the reducing balance method should be adopted as it allocates more cost in the earlier years and less in the later years of the life of the asset, when it is less productive. That is, this method assumes that as the asset ages, it has a tendency to break down and not be used as often so its contribution to earning revenue will decrease over time. For example, if the Equipment has lots of moving parts it may tend to break down as it ages then the reducing balance method may be more appropriate. Question 5 a. Cash Receipts Journal Date Details 2014 Rec. No. 28 June 235 Prepaid Sales Revenue Bank 500 Disc. Exp. Debtors Control Cost of Sales Sales Sundries GST 500 b. Explanation The deposit would be reported as a current liability called Prepaid Sales Revenue as it is a present obligation of the entity. The settlement of the obligation (to provide the goods to the customer) is expected to result in an outflow of economic benefits (stock) when the goods are supplied sometime in the next 12 months. 7 Unit 3 Accounting - PRACTICE SAC2a 2014 c. General Journal Date Details General Ledger Debit 2 July Prepaid Sales Revenue Sales Revenue Prepaid Sales revenue (deposit) now earned ( Inv 121) Sales Journal Date Debtor 2014 2 July James Hay Inv. No. 121 Subsidiary Ledger Credit Debit Credit 500 500 Cost of Sales 1500 Sales 3000 GST 350 3500 – 500 deposit Debtors Control 3350 3000 + 350 GST Question 6 a. Explanation The Accrued Interest Expense is reported as a current liability as it is a present obligation of the business. The settlement of the obligation (interest owing to the bank) is expected to result in an outflow of cash (economic benefit) in the next 12 months when the interest owing is paid. b. Explanation-----Balance(1) Represents the balance carried forward from the previous period. The interest owing was incurred in the previous period even though it was not paid but is carried forward as it represents a future obligation of the business as the interest is still owed to the business at the start of this reporting period perperiod. Explanation-----Bank (2) Represents the cash paid to the bank for the interest owing by the business from the previous reporting period. Explanation-----Interest (3) Represents the interest incurred but not yet paid in the current reporting period c. Explanation The interest has been incurred in the current period even though it has not been paid and should be included as an expense in the current period resulting in an increase in other expenses and a decrease in Net Profit. 8 Unit 3 Accounting - PRACTICE SAC2a 2014 Question 7 a. Explanation Accrued Interest Revenue would be reported as a current asset, as it is an economic resource controlled by the entity, from which future economic benefits are expected to flow to the entity in the next 12 months. That is, in the next few months cash (economic benefit) is expected to flow in the business when the interest owing to the business is received. b. Explanation-----Balance(1) Represents the balance carried forward from the previous period. The interest owing was earned in the previous period even though it was not received but is carried forward as it represent a future economic benefit for the business as the interest is still owing to the business at the start of this reporting period. Explanation-----Bank (2) Represents the cash received for the interest owing to the business from the previous reporting period. Explanation-----Interest (3) Represents the interest earned but not yet received in the current reporting period c. Explanation The interest has been earned in the current period even though it has not been received and should be included as revenue in the current period resulting in an increase in other revenue and an increase in Net Profit. Question 8 a. Cash Receipts Journal Date 2014 1 Jan Details Capital Rec. No. 1 Bank Disc. Exp. Debtors Control Cost of Sales 3000 Sales Sundries GST 3000 General Journal Date Details General Ledger Debit July 1 Prepaid Advertising Expense GST Clearing Equipment Fittings Motor Vehicle Loan Capital Commencement of double entry records (Memo 1) Credit 4800 480 18000 3000 9000 20000 16600 END OF SOLUTION BOOK Subsidiary Ledger Debit Credit 9
