Accting 2501 Financial Accounting For Assessment Answers

Prepare the journal entries to record the transactions of Ketchup Ltd up to and including that which took place on 15 December 2015. Show all relevant dates, narrations and workings.

Answer:

IAS 10 “Events after the reporting period” means the events that has occurred after the end of reporting period but the adjustments or note to accounts, to be given in the financial statements. There are two types of events i.e. Adjusting events and non-adjusting events. Adjusting events are those events which are to be adjusted, if some events occurred after the date of financial statements which give proof of the conditions which preexisted at the time of finalization of accounts. This concept would be explained with the following examples:

The night cub was destroyed by fire on 25^thAugust whose conditions were not existed at the time of finalization of accounts. So, this is non-adjusting event but the note to financial statements can be given if going concern concept is at danger.

Snapper has bought 5000000 shares @ $1 on 1^stAugust at market rate which is after the end of financial statements. So, this is also a non-adjusting event because there were no indications of the same at the year end.

There were no indications at the end of period of financial statements that the company will sell its fishing business on 5^th So, this is a non-adjusting event because there were no conditions which were existed at the end of reporting period which gives indication of the event of sale of fishing business.

The material which was received before the end of reporting period should be entered in accounts of that period because the same was entered in the inventory records. So, the same should be entered in same accounting period. This is an adjusting event.

Journal entry: Accounts payable A/c $15000

To Purchase A/c $15000

The reduction of fine to $ 5000 from $ 55000 has given indication that the fine which was levied in June i.e. before the end of reporting period. So, any incident which gives indication of the event occurred before reporting period should be adjusted in the accounts.

Journal entry: ATO A/c_____Dr 50000

To fine & penalties A/c 50000

Date	Journal Entries	Debit	Credit
20-08-15	Bank A/c	$300,000
	To Share Application		$300,000
	( Being share application money received)
31-08-15	Share Application A/c	$300,000
	To share capital A/c		$300,000
	( Being shares allotted)
	Commission A/c	$15,000
	To bank A/c		$15,000
	(Being underwritten commission)
30-09-15	Share allotment A/c	$240,000
	To share capital A/c		$240,000
	( Being share allotment money received)
	Bank A/c	$240,000
	To share allotment A/c		$240,000
	( Being allotment money received)
30-11-15	Share Call A/c	$260,000
	To share capital A/c		$260,000
	( being share call made)
	Bank A/c	$130,000
	To share call A/c		$130,000
	( Being money received on call )
15-12-15	Share capital A/c	$400,000
	To share Call A/c		$130,000
	To forfeited shares A/c		$270,000
	( being share forfeited)
	Bank A/c	$360,000
	Forfeited shares A/c	$40,000
	To share capital A/c		$400,000
	( Being shares reissued)
	Forfeited shares A/c	$230,000
	To capital ReserveA/c		$230,000
	( Being Bal. TF to capital reserve)
	Capital reserve A/c	$2,000
	To cost on reissue A/c		$2,000
	( Being cost on re-issue A/c

	Calculation of taxable Income
	Accounting Profit	324000
Less:	Royalty income	7500
	Interest revenue	1500
Add:	Annual leave expense	3600
	Warranties	1500
	Insurance expense	2000
	Doubtful debts	1800
		323900
	Tax rate	30%
	Current tax liability	97170
	Journal entry	97170
	P&L A/c________________Dr		97170
	To Income tax payable A/c
	( Being current tax liability )
	Temporary differences		DTA
	Income exempt for tax purpose	7500
	Dep on Motor Vehicle	5000
	Annual Leave	3600
	Warranties	1500
	Insurance	2000
	Doubtful debts	1800
		21400
	Tax rate	30%
	DTA	6420
	Temporary differences		DTL
	Dep on plant	15750
	tax rate	30%
	DTL	4725
	Journal Entries
	DTA A/c_____________Dr	6420
	To P&L A/c		6420
	( Being DTA created)
	P&L A/c______________Dr	4725
	To DTL A/c		4725
	( Being DTL created)
	Calculation of Closing DTA
	Op bal of DTA	17490
	Add: Created dutring the period	6420
		23910
	Calculation of Closing DTL
	Op bal of DTL	7200
	Add: Created dutring the period	4725
		11925

Workings:	P&L	Allowed in tax	DTA
Annual Leave	6000	2400	3600
Warranties	7400	5900	1500
Insurance	5000	3000	2000
Doubtful debts	2800	1000	1800
Account of prepaid insurance
Opening balance	3000
Closing Balance	1000
Insurance debited to P&L	5000
Insurance amount paid	3000
Account of warranties
Opening balance	11600
Closing Balance	13100
Warranties debited to P&L	7400
Warranties amount paid	5900
Account of Anuual Leave
Opening balance	12000
Closing Balance	15600
Leave debited to P&L	6000
leave amount paid	2400

	Motor vehicle 1
30-06-15	Carrying value	60000
30-06-16	Calculation of carrying value
	value as on 1-7-15	60000
	Dep for 15-16	12500
	Carrying Value as on 30-6-16	47500
	Revalued Amount	58000
	Upward revaluation	10500
	Journal entries
	Motor Cycle A/c _________Dr	10500
	To revaluation gain A/c		10500
	( Being revaluation made)
	Depreciation A/c	12500
	To Acc. Dep.		12500
	( Being depreciation recorded)
01-07-16	Carrying value	58000
	Depreciation for 16-17	16000
		42000
	Revalued amount	40000
	Downward revaluation	-2000
	Journal entries
	Revaluation loss A/c	2000
	To Motor cycle A/c		2000
	( Being revaluation made)
	Depreciation A/c	16000
	To Acc dep		16000
	( Being depreciation recorded)
	MOTOR CYCLE 2
30-06-15	Carrying value	20000
30-06-16	Calculation of carrying value
	value as on 1-7-15	20000
	Dep. for 15-16	8000
	Carrying Value as on 30-6-16	12000
	Revalued Amount	17000
	Upward revaluation	5000
	Journal entries
	Motor Cycle A/c _________Dr	5000
	To revaluation gain A/c		5000
	( Being revaluation made)
	Depreciation A/c	8000
	To Acc. Dep.		8000
	( Being depreciation recorded)
01-07-16	Carrying value	17000
	Depreciation upto 31st dec 2016	5000
		12000
	Sale of motor vehicle	13000
	Profit on sale	1000
	tax rate	30%
	tax amount	300
	Journal entries
	Depreciation A/c	5000
	To Acc. Dep.		5000
	( Being depreciation recorded)
	Cash A/c	13000
	To motor Cycle A/c		12000
	To gain on sale A/c		1000
	( Being motor vehicle sold)
	Tax expense A/c	300
	To cash A/c		300
	( Being tax on gain of MV paid)

Calculation of recoverable Amount
Fair value less cost to sell	720000
Value in use	810000
Higher of above is recoverable amount	810000
Calculation of impairment loss
Recoverable Amount	810000
Carrying amount	873000
Impairment loss	-63000
Journal entry
Impairment loss A/c	63000
To acc. Impairment loss		63000
( Being impairment entry passed)

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