Preparation of Financials Assignment

Solution-1
Part-A
(i) Yes, the trial balance is an important report since it provides the bird’s eye view of
entire transactions posted in the books. In the accounting, all the transactions are
posted in the general journal and from there it is posted to the ledgers. From the
ledgers, the trial balance is prepared which is basically a summarized report of the
transactions. With the help of trial balance, the financial statements are prepared,
without trial balance, the preparation of financials is almost impossible.
(ii) No, it will be incorrect to assume that if the trial balance matches, then the books are
correct. This is because the trial balance may contain the compensating errors or
errors of omission. For example, any transaction omitted from the books to record or
the transaction is recorded with the wrong amount on both the sides, and transaction
wrongly posted in wrong vendors account, say instead of Ram’s account to Shyam’s
account. All these transactions will not reflect in the trial balance making the trial
balance incorrect.
Part-B
Would the error
cause the Trial
Balance not to
balance
Which
accounts
would be
affected
and how?
How would the
error be
corrected
Effect on Trial
Balance totals
Yes No Debit Credit
Example A payment for
wages of 500 was
credited to cash
correctly but debited to
wages twice expense.
Yes Wages
expense
Debit side of
Wages Expense
reduced by 500
-500
1. The Accrued Wages
account with a balance
of $500 was omitted
from the Trial Balance.
Yes Accrued
Wages
Credit side of
Accrued Wages
increased by 500
500
2. A payment of $490 for
Prepaid Rent was only
posted to the Cash at
Bank account and not to
Prepaid Rent
Yes Prepaid
Rent
Debit side of
Prepaid rent
account increased
by 490
490
3. A debit of $458 to
Cash at Bank was
posted as $485. The
credit entry was correct.
Yes Cash at
bank
Debit side of cash
at bank account
reduced by 27
-27
4. A credit of $600 to
Accounts Payable
should have been made
No
Accounts
Payable and
Fees
Credit side of
accounts payable
reduced by 600,
-

to Fees Revenue revenue
and credit side of
fees revenue
account increased
by 600
5. A Dr for a cash receipt
of $500 from customers
in settlement of their
accounts was posted
twice as a DR to the
Cash at Bank and a Dr
to Accounts Receivable
accounts
Yes Cash at
bank
Debit side of cash
at bank account
reduced by 500
-500
6. The Prepaid Expense
balance of $7280 was
listed in the Trial
Balance as $7820
Yes Prepaid
Expense
Debit side of
prepaid expense
account reduced
by 540
-540
7. A $5210 credit to
Fees Revenue was
posted as a $521 credit.
The debit entry to
Accounts Receivable
was made correctly.
Yes Fees
revenue
Credit side of fees
revenue account
increased by
4,689
4,689
8. A purchase of office
equipment for $3300 on
credit was not recorded.
No
Office
equipment,
accounts
payable
Debit side of office
equipment
increased by
3,300 & credit side
of accounts
payable increased
by 3,300
3,300 3,300
9. A purchase of
Furniture for $7500
using a loan was posted
as a debit to the Loan
Payable account and a
debit to the Equipment
account.
Yes Loan
Payable
Credit side of loan
payable account
increased by
15,000
15,000
10. The drawings
account balance was
listed as a credit for
$1500.
Yes Drawings
Debit side of the
Drawings account
increased by
3,000
3,000

Solution-2
Part-A
Matching principle states that the expenses should be accounted for in the period in which
revenue is recognized. Means the expenses relating to a particulars income should be booked
in the same period. The matching principle suits with the accrual basis of accounting as the
accrual basis of accounting also requires booking of expenses related to the particular income
in the same period which the cash basis of accounting requires to book the expenses and
incomes in the period in which they are earned or expended in cash.
Part-B (i)
In the books of J. Jackson
Journal entries for the year ended 30th June, 2018
(Amount in $)
Sr. No. Particulars Debit Amt Credit Amt
(i) Wages expense 8,400
Wages payable 8,400
(Being wages payable recorded at 21,000/5*2)
(ii) Commission fees receivable 1,520
Commission fees 1,520
(Being income due not received recorded)
(iii) Prepaid Rent 21,000
Rent expense 21,000
(Being prepaid rent recorded at 36,000/12*7)
(iv) Interest receivable 375
Interest income 375
(Being interest earned recorded at 25,000*6%*1/4)
(v) Unearned income 3,600
Income 3,600
(Being income earned recorded at 12000*30%)
(vi) Office furniture 6,000
Office expenses 6,000
(Being the rectifying entry correctly transferred)
(vii) Supplies expense 4,500
Office supplies 4,500

(Being consumption of office supplies recorded)
(viii) GST Collected 7,960
GST Paid 7,960
(Being net amount of GST recorded)
Part-B (ii)
Calculation of new profit figure
(Amount in $)
PARTICULARS AMOUNT
PROFIT AS STATED 3,281,001
ADJUSTMENTS
DECREASE IN PROFIT DUE TO INCREASE
IN EXPENSE
WAGES EXPENSE 8,400
SUPPLIES EXPENSES 4,500 12,900
INCREASE IN PROFIT DUE TO REDUCED
EXPENSES
RENT EXPENSE 21,000
OFFICE FURNITURE PURCHASED 6,000 27,000
INCREASE IN PROFIT DUE TO INCREASE
IN INCOME
COMMISSION FEES 1,520
INTEREST INCOME 375
INCOME (FROM UNEARNED) 3,600 5,495
REVISED PROFIT 3,300,596

Solution-3
Part-A
The four qualitative characteristics that enhance the usefulness of information are as below:
(a) Relevance – The presented information should be relevant and to the point.
(b) Understandability – The information presented in report should be simple and
understandable and should be prepared from the layman point’s of view.
(c) Reliability – The presented information should be free from errors and mis-
representations so that the information can be relied.
(d) Comparability – The information should be in the prescribed format and as per defined
criteria’s so that it can be compared easily.
Part-B (i)
HARDYARDS ACCOUNTING SERVICES
Worksheet (partial) for period ended 30th June, 2018
Account
Adjusted Trial
Balance Income Statement Balance Sheet
Debit Credit Debit Credit Debit Credit
Cash at Bank 14,900 14,900
Accounts Receivable 25,825 25,825
Prepaid Expenses 2,200 2,200
Office Supplies 6,160 6,160
Accrued Revenue 2,540 2,540
GST Paid 26,000 26,000
Equipment 163,000 163,000
Accumulated
Depreciation 28,000 28,000
Accounts Payable 6,320 6,320
Loan Payable 55,000 55,000
Salaries Payable 1,930 1,930
GST Collected 32,740 32,740
Unearned Revenue 2,750 2,750
B. Bright Capital 50,000 50,000
B. Bright Drawings 5,000 5,000
Painting Revenue 204,055 204,055
Wages Expenses 100,020 100,020
Rent Expense 6,550 6,550
Depreciation Expense 11,000 11,000
Marketing Expense 5,520 5,520
Office Supplies Expense 6,180 6,180
Interest on Loan
Expense 5,900 5,900
380,795 380,795 135,170 204,055 245,625 176,740

Profit 68,885
245,625 245,625
Part-B (ii)
Closing entries in the journal
Sr. No. Particulars Debit Amt Credit Amt
1 Painting Revenue 204,055
Retained Earnings 204,055
(Being amount transferred)
2 Retained Earnings 135,170
Wages expense 100,020
Rent expense 6,550
Depreciation expense 11,000
Marketing expense 5,520
Office supplies expense 6,180
Interest on loan expense 5,900
(Being amount transferred)
3 B. Bright Capital 5,000
To B. Bright Drawings 5,000
(Being amount transferred)

Solution-4
Part-A
(a) The way of offering credits by the business will not change as the sale terms and
conditions will remain same, what will change is the process of collections. Earlier the
business used to collect money on their own, now they have hired the factors or third
parties, who will collect the payment on their behalf. This will increase the collection
costs of the businesses which they now need to pay to these factors.
(b) Now, the firms will not have to monitor their receivables as for these factors are
responsible.
Factoring means to outsource the debts collection.
(c) If bad and doubtful debts are not allowed then it will increase the profit of the firm or will
overstate the profit while lowering the provisioning of bad debts.
Part-B(i)
Journal Entries for June
Sr. No. Particulars Debit Amt Credit Amt
(i) Allowance for Doubtful Debts 11,510
Accounts Receivable 11,510
(Being bad debts written off recorded)
(ii) Cash 19,910
Accounts receivable 79,640
GST Collection 9,050
Sales 90,500
(Being sales for the month recorded)
(iii) Cash 121,600
Accounts receivable 121,600
(Being cash collection recorded)
(iv) Cash 1,870
Allowance for Doubtful Debts 1,870
(Being cash collected from doubtful debts recorded)
(v) Accounts receivable 2,200
Sales 2,200
(Being rectified entry recorded)
(vi) Bad debts expense 13,075

Allowance for Doubtful Debts 13,075
(Being record bad debts recorded)
Part-B(ii)
Ledger Accounts
Accounts Receivable
Date Particulars Debit Credit Balance
01-Jun Opening balance 265,400 265,400
Allowance for doubtful debts 11,510 253,890
GST Collection 7,240 261,130
Sales 72,400 333,530
Cash 121,600 211,930
Allowance for doubtful debts 1,870 213,800
Cash 1,870 211,930
Sales 2,200 214,130
Allowance for Doubtful Debts
Date Particulars Debit Credit Balance
01-Jun Opening balance 15,565 (15,565)
Accounts receivable 11,510 (4,055)
Accounts receivable 1,870 (5,925)
Bad debts expense 13,075 (19,000)
Cash at Bank
Date Particulars Debit Credit Balance
01-Jun Opening balance 106,000 106,000
GST Collected 1,810 107,810
Sales 18,100 125,910
Accounts receivable 121,600 247,510
Accounts receivable 1,870 249,380
Sales
Date Particulars Debit Credit Balance
01-Jun Opening balance 878,490 (878,490)
Cash 18,100 (896,590)
Accounts receivable 72,400 (968,990)
Accounts receivable 2,200 (971,190)

GST Collected
Date Particulars Debit Credit Balance
01-Jun Opening balance
Cash 1,810 (1,810)
Accounts receivable 7,240 (9,050)
Bad debt expense
Date Particulars Debit Credit Balance
01-Jun Opening balance
Allowance for doubtful debts 13,075 13,075
Part-B(iii)
Classified Income Statement and Balance Sheet
Income Statement
In the books of Homewares Company Ltd
As at 30th June, 2018
Amount in $
Particulars Amount
Income
Sales 971,190
Expense
Bad debts expense 13,075
Balance Sheet
In the books of Homewares Company Ltd
As at 30th June, 2018
Amount in $
Particulars Amount
Assets
Current assets
Accounts receivables 214,130
Less: Allowance for doubtful debts (19,000)
Cash 249,380
Total Assets 444,510

Liabilities
Current liabilities
GST Collected 9,050
Total Liabilities 9,050
Part-B(iv)
The two methods that can be used to calculate allowance for bad debts are:
1. Percentage of Debtors method – The allowance for bad debts is calculated by taking a
specified percentage of closing balance of debtors. This percentage is decided by the
management.
2. Debtors Ageing method – The debtors outstanding for more than specified days are
transferred to allowance for bad debts account. These specified days are decided by the
management.

Solution-5
Part-A (i)
Calculation of the value of the machine for depreciation purposes
Particulars
Part of
asset? Remarks
Initial price paid to the supplier Yes Purchase cost
Cost to deliver the machine to the site Yes
Transportation cost required to put
asset to use
Amount to paint the company name on the
machine No
Not a cost since not a mandatory
expense
Amount paid to an engineer to fit the
machine ready for work Yes
Installation cost required to put asset to
use
Repairs to the factory door damaged
when bringing in the machine No Not a cost related to asset
Repairs made to replace bolts which had
dislodged during transit No
Not a part of cost should be expensed
off
Particulars Amount
Initial price paid to the supplier 65,000
Cost to deliver the machine to the site 3,500
Amount paid to an engineer to fit the machine ready for
work 14,500
Total Machine Cost 83,000
Part-A (ii)
The available method of depreciation are SLM using life and SLM using hours.
(a) Depreciation using years as life (83,000-7,000)/10 = 7,600
(b) Depreciation using hours as life (83,000-7,000)/100,000*10,000 = 7,600
Note: The information as to hours consumed in respective years is missing, hence it is assumed
that 10,000 hours are used in each year.
No impact on depreciation, however, if above assumption as regards to hours consumed
changes, than the depreciation calculated taking hours as basis will also change.
Part-A (iii)
According to accounting standards, the assets should reflect true and fair view. Hence, the
assets should be revalued so that the value of assets as shown in financials will be correct and
matches with the market value.

Part-B (i)
Journal Entries
(Amount in $)
Sr. No. Particulars Debit Amt Credit Amt
01-Mar-18 Truck 3 130,000
GST paid 13,000
Cash 30,000
Loan payable 113,000
(Being purchase of truck recorded)
31-Mar-18 Depreciation 8,543
Accumulated Depreciation 8,543
(Being depreciation recorded upto the date of
sale)
31-Mar-18 Accumulated Depreciation 70,980
Truck 2 70,980
(Being accumulated depreciation adjusted)
31-Mar-18 Cash 44,000
Truck 2 37,020
Profit on sale (WN-1) 2,980
GST collected 4,000
(Being sale of truck recorded)
30-Jun-18 Depreciation 3,900
Accumulated Depreciation 3,900
(Being depreciation recorded at 130,000*9%/12*4)
WN-1 Calculation of Profit on sale of Truck -2
Year
ended on Opening WDV Dep
Closing
WDV
30 Jun, 15 108,000 27,000 81,000
30 Jun, 16 81,000 20,250 60,750
30 Jun, 17 60,750 15,188 45,563
30 Jun, 18 45,563 8,543 37,020
70,980

WDV as on 31st March, 2018 37,020
Sale value 40,000
Profit on sale 2,980
Part-B (ii)
Calculation of depreciation charges if the method of dep is change to SLM for Truck 2
Depreciation on Truck 2 - WDV method
Year ended on
Opening
WDV Dep Closing WDV
30 Jun, 15 108,000 27,000 81,000
30 Jun, 16 81,000 20,250 60,750
30 Jun, 17 60,750 15,188 45,563
30 Jun, 18 45,563 8,542.97 37,020
70,980
Depreciation on Truck 2 - SLM method
Year ended
on Opening WDV Dep Closing WDV
30 Jun, 15 108,000 12,000 96,000
30 Jun, 16 96,000 12,000 84,000
30 Jun, 17 84,000 12,000 72,000
30 Jun, 18 72,000 9,000 63,000
45,000
Calculation of depreciation rate
Depreciation rate = ((108000-12000)/8)/108000
= 11.11%
Part-B (iii)
Calculation of difference of the two methods of depreciation
Particulars WDV SLM Diff.

Revenue as on 30th June, 2017 212,000 212,000 0
Depreciation for the year 15,188 12,000 3,188
Revenue after depreciation 196,813 200,000 3,188

Solution-6
Part-A(i)
Journal Entries
Perpetual Periodic
Trans Particulars DR CR Trans Particulars DR CR
1 Inventory (32*55) 1,760 1 Purchases (32*55) 1,760
Accounts payable 1,760 Accounts payable 1,760
2 Accounts payable 110 2 Accounts payable 110
Inventory (2*55) 110 Purchase return (2*55) 110
3
Accounts receivable
(58*180) 10,440 3
Accounts receivable
(58*180) 10,440
Sales 10,440 Sales 10,440
Cost of goods sold
(58*48) 2,784
Inventory 2,784
4 Sales return (2*180) 360 4 Sales return (2*180) 360
Accounts receivable 360 Accounts receivable 360
Stock loss (2*48) 96 Inventory (ending) 3,570
Cost of goods sold 96 COGS 2,880
Inventory (opening) 4,800
5 Stock loss (2*48) 96 Purchases 1,650
Inventory 96
Part-A(ii)
Income Statement under Perpetual Method
Sales 10,440
Less: Sales return (360)
Less: Cost of goods sold (2,688)
Less: Stock loss (192)
Gross Profit 7,200

Income Statement under Periodic Method
Sales 10,440
Less: Sales return (360)
Less: Cost of goods sold (2,880)
Gross Profit 7,200
Part-A(iii)
Perpetual method is preferable because it reflects the inventory value at real time.
Part-A(iv)
The financials are prepared using conservative approach and hence the accounting standards
require the inventory to be measured at lower of cost of NRV.
Part-B
(i) Identifying the approach and method adopted for below items on the basis of Annual
Report 2017 of Super Retail Group:
(a) Revenue Recognition – The Revenue is recognized at fair value of the
consideration received or receivable.
(b) Inventory Valuation - Inventories are measured at the lower of cost and net
realizable value.
(c) Depreciation of non-current assets - Depreciation are calculated on a straight line
basis for accounting.
(ii) The company makes the following statement:
(a) Ethical Practice - We are committed to promoting better working conditions in our
global supply chain and ensuring the products we provide to our customers are
ethically and sustainably sourced.
(b) Sustainability - At Super Retail Group we share your passion to make our world a
cleaner, healthier and happier place. We recognize the important role we have to
play ensuring the well-being of the environment and the communities in which we
operate.