VCE ACCOUNTING UNIT 4



VCE ACCOUNTING UNIT 4 SAC 1 PRACTISE

QUESTION ONE

Funsun Products sells outdoor furniture and associated products to both other wholesalers and retail stores. The business uses perpetual stock recording system with First in First Out costing and uses the accrual method of accounting.

On July 1 2014:

|Funsun have 3 debtors: |Funsun have 2 creditors: |

|Myer Stores $5 000 |Outdoor Furniture Suppliers $700 |

|Super Furniture Wholesaler $2 000 |Best Garden Furniture $2 300 |

|Burnets Hardware $1 500 | |

1.1

|FUNSUN PRODUCTS | |BEST GARDEN FURNITURE |

|CREDIT NOTE 333 Date 20/7 | |DATE 27/7/2014 |

|TO: Myer Stores | |CREDIT NOTE 27 |

|FOR 4 canvas umbrellas (faulty) | |FOR CREDIT OF: Funsun Products |

|4 @ 200 Total Cost $800 GST $80 | |REASON: Incorrect order |

|Signature Andrew Watts | |QTY DESCRIPTION UNIT PRICE |

| | |3 Canvas Umbrella $120 |

| | |GST $36 |

| | |SIGNATURE K Karlson |

|MEMO 101 JULY 31 2014 | |OTHER INFORMATION |

| | |Over the month Credit Purchase amounted to $9000 (including $3000 from Best|

|Burnets Hardware is closing down and is unable to pay the full amount | |Garden Furniture) |

|of their account. They have paid 50% of what they owe. | |Over the month Credit Sales amounted to $16000 (including sales to Myer of |

| | |$4000). GST HAS NOT BEEN INCLUDED YET AND NO ADDITIONAL PAYMENTS WERE MADE |

| | |OR RECEIVED. |

REQUIRED

1.1 Using the documents and information provided complete the canvas umbrella stock card. (3 marks)

2. Using the documents and information provided enter the transactions in the general journal. (Narrations are required) (6 marks)

1.3 Post the information above to the identified general ledger and subsidiary ledger accounts. (4 marks)

QUESTION TWO

Harriet sells specialist pot plants at the market. She purchases the plants from the growers and repots for sale. In doing so she incurs a number of other expenses. A friend who is studying accounting says she needs to follow accounting standards and product cost her expenses if appropriate rather than period cost them all.

On 1 August she purchased 100 new plants. Her costs are set out below:

▪ Plants $15 each

▪ Soil mix for each pot $3

▪ Labour costs to repot plants $200 per day (100 plants are repotted in a day)

▪ New pots $5 each

▪ Labelling $100 per 100 labels

▪ Advertising pamphlets for the business letter boxed in area $75

2.1 What is the difference between product and period costing? How does applying product costing impact on the business? (4 marks)

2.2 At what cost should the pot plants be recorded? (2 marks)

2.3 As at 31 August Harriet has sold 50 pot plants at a sales price of $50 each. Prepare Harriet’s Income Statement (to adjusted gross profit) for the month of August (in addition one plant was destroyed and is being identified as a stock loss). (3 marks)

QUESTION THREE

On 31 August Harriet realises some other plants she has had for a while don’t look very good, some pots are badly cracked, some have outgrown their pots and will need to be repotted and some have lost their labels. As a result she will need to reduce her selling price. Details below:

|Pot Plant Type |Quantity |Cost Price $ |Selling Expenses $ |Likely selling price $ |Net Realisable Value |

|A |10 |15 |0 |10 | |

|B |10 |10 |5 |15 | |

|C |10 |20 |10 |25 | |

Harriet’s accounting friend says she will need to identify net realisable value and write down some of her stock.

3.1 What is meant by the term net realisable value? (2 marks)

3.2 Using the information above prepare the General Journal entry required to record the stock write down. (Narration required. Memo 21) (3 marks)

3.3 Describe the impact on Harriet’s accounting reports if she failed to record the stock write down? (3 marks)

QUESTION FOUR

Harriet has a range of display fixture and fittings in her showroom that she purchased on 1/1/2012 for $20000 (plus GST $2000). She is uncertain as to whether she should use straight line or reducing balance depreciation on these items. She identifies a straight line rate of 15%

She identifies a reducing balance rate of 25%

4.1 Calculate accumulated depreciation on the fixture and fittings for the two years from 1/1/2012 to 31/12/2013 if Harriet used the straight line depreciation method. (2 marks)

4.2 Calculate accumulated depreciation on the fixture and fittings for the two years from 1/1/202012 to 31/12/2013 if Harriet used the reducing balance depreciation method. (3 marks)

4.3 Discuss the two methods of depreciation Harriet is considering and advise her as to which method she should use for the fixture and fittings. (4 marks)

QUESTION FIVE

Harriet has decided to apply the straight line depreciation method (at a rate of 15%). On 31 December 2014 she decided to replace the fixtures and fittings (original cost $20000 purchased on 1/1/2012) in the showroom. Supa Display Company that will accept her old fixtures and fittings as a trade in on new ones that she will buy from them on credit. They are offering her $13000 trade in on the new ones which will cost $25000 (plus GST of $2500). There is also an installation charge of $1000 (plus GST $100).

5.1 Prepare the General Journal entry required to be made on 31 December to record the disposal and credit purchase of the new fixtures and fittings. (No Narration required) (6 marks)

5.2 Complete the Disposal of Fixtures and Fittings Ledger Account and the Fixtures and Fittings Ledger Account. (4 marks)

5.3 Harriet is surprised that she has made a Profit on the Disposal of the fixtures and fittings. Give 2 reasons why a profit on disposal would occur. (2 marks)

QUESTION SIX

The business has been doing very well and Harriet has taken the opportunity to invest some surplus cash on 1 March 2014. The Commonwealth Bank has offered her 6% per annum interest on a term deposit of $30 000. The bank will pay her interest in two equal payments on 1 September 2014 and 1 March 2015. Harriet prepares her reports every 6 months (30 June and 31 December).

6.1 How much interest revenue has been earnt for the year ended 30 June 2014?

6.2 Prepare the balance day adjustment in the General Ledger required on 30 June 2014.

6.3 Complete the recording of the necessary entries on 1 September 2014 when the first installment of interest is received.

QUESTION 7

Harriet has a customer who wants some very exotic plants from overseas. Harriet decides the customer will need to pay in advance. At 31/1/2014 Harriet received $3200 + $320 GST from the customer (cost price of these plants was $1000). Delivery of all plants took place on 31 March.

7.1 Record this information in the journals and ledgers provided on 31/1/14. (4 marks)

7.2 Record the entries required on 31 March2014 when all plants are supplied. (4 marks)

7.3 Harriet cannot understand why she needs to record the initial receipt of cash as prepaid sales revenue and not just sales revenue. Explain to Harriet why this is the case identifying the relevant Accounting Principal. (3 marks)

ANSWER BOOK

1.1

|STOCKCARD (FUNSUN PRODUCTS) Valuation Method: FIFO |

|Item CANVAS UMBRELLAS |

|CODE A132 |

|DATE |REFERENCE |IN |OUT |BALANCE |

| |(DETAILS) |QTY |COST |VALUE |

|DATE |DETAILS |POST REF |DEBIT |CREDIT |DEBIT |CREDIT |

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1.3

CREDITORS CONTROL

|DATE |PARTICULARS |AMOUNT |DATE |PARTICULARS |AMOUNT |

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CREDITOR – Best Garden Furniture

|DATE |PARTICULARS |AMOUNT |DATE |PARTICULARS |AMOUNT |

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DEBTORS CONTROL

|DATE |PARTICULARS |AMOUNT |DATE |PARTICULARS |AMOUNT |

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DEBTOR – Myer Stores

|DATE |PARTICULARS |AMOUNT |DATE |PARTICULARS |AMOUNT |

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DEBTOR - Burnets Hardware

|DATE |PARTICULARS |AMOUNT |DATE |PARTICULARS |AMOUNT |

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SALES RETURNS

|DATE |PARTICULARS |AMOUNT |DATE |PARTICULARS |AMOUNT |

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2.1

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2.2

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|COST PRICE OF A POT |

2.3

Harriet’s Pot Plants

Extract Income Statement for month ending 31August 2014

REVENUE

LESS COST OF GOODS SOLD

GROSS PROFIT

ADJUSTED GROSS PROFIT

3.1

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3.2

GENERAL JOURNAL

|DATE |PARTICULARS (relevant ledger accounts) |DR |CR |DR |CR |

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3.3

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4.1

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4.3

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5.1 GENERAL JOURNAL

|DATE |PARTICULARS (relevant ledger accounts) |DR |CR |DR |CR |

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5.2

FIXTURES AND FITTINGS

|DATE |PARTICULARS |AMOUNT |DATE |PARTICULARS |AMOUNT |

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DISPOSAL OF FIXTURES AND FITTINGS

|DATE |PARTICULARS |AMOUNT |DATE |PARTICULARS |AMOUNT |

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5.3

|REASON ONE |

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|REASON TWO |

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6.1

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|Interest Earnt |

6.2 GENERAL JOURNAL

|DATE |PARTICULARS |GENERAL LEDGER |SUBSIDARY LEDGER |

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6.3 ACCRUED INTEREST REVENUE

|DATE |PARTICULARS |AMOUNT |DATE |PARTICULARS |AMOUNT |

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INTEREST REVENUE

|DATE |PARTICULARS |AMOUNT |DATE |PARTICULARS |AMOUNT |

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CASH RECEIPTS

|DATE |PARTICULARS |REC |BANK |COST |SALES |

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7.2 GENERAL JOURNAL

|DATE |PARTICULARS |GENERAL LEDGER |SUBSIDARY LEDGER |

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SALES REVENUE

|DATE |PARTICULARS |AMOUNT |DATE |PARTICULARS |AMOUNT |

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7.3

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VCE ACCOUNTING UNIT 4 SAC 1 PRACTISE ANSWERS

QUESTION ONE

1.1

|STOCKCARD (FUNSUN PRODUCTS) Valuation Method: FIFO |

|Item CANVAS UMBRELLAS CODE A132 |

|DATE |REFERENCE |IN |OUT |BALANCE |

| |(DETAILS) |QTY |COST |

|DATE |DETAILS |DEBIT |CREDIT |DEBIT |CREDIT |

|20/7 |Sales Returns |800 | | | |

| |GST Clearing |80 | | | |

| | Debtors Control | |880 | | |

| | Debtors Control - Myer | | | |880 |

| |Stock Control |400 | | | |

| | Cost of Sales | |400 | | |

| |Return by Myer 4 umbrellas CN 33 | | | | |

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|27/7 |Creditors Control |396 | | | |

| |Creditor - BGF | | |396 | |

| | Stock Control | |360 | | |

| | GST Clearing | |36 | | |

| |Return 3 umbrellas to BGF CN 29 | | | | |

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|31/7 |Bad Debts |750 | | | |

| | Debtors Control | |750 | | |

| | Debtors - Burnets | | | |750 |

| |Write bad debt Burnets (50%) Memo 101 | | | | |

1.1.3 CREDITORS CONTROL

|DATE |PARTICULARS |AMOUNT |DATE |PARTICULARS |AMOUNT |

|27/7 |Stock Control/GST Clearing |396 |1/7 |Balance |3000 |

| | | |31/7 |Stock Control/GST Clearing |9900 |

* Stock $360 GST $36 as indicated on the Credit Note for the Purchase Return

CREDITOR – Best Garden Furniture

|DATE |PARTICULARS |AMOUNT |DATE |PARTICULARS |AMOUNT |

|27/7 |Stock Control/GST Clearing |396 |1/7 |Balance |2 300 |

| | | |3/7 |Stock Control/GST Clearing |3300 |

DEBTORS CONTROL

|DATE |PARTICULARS |AMOUNT |DATE |PARTICULARS |AMOUNT |

|1/7 |Balance |8 500 |31/7 |Sales Returns/GST Clearing |880 |

|31/7 |Sales Revenue/GST Clearing |17600 |31/7 |Bad Debts |750 |

DEBTOR – Myer Stores

|DATE |PARTICULARS |AMOUNT |DATE |PARTICULARS |AMOUNT |

|1/7 |Balance |5000 |20/7 |Sales Returns/GST Clearing |880 |

|12/7 |Sales Revenue/GST Clearing |4400 | | | |

DEBTOR - Burnets Hardware

|DATE |PARTICULARS |AMOUNT |DATE |PARTICULARS |AMOUNT |

|1/7 |Balance |1 500 |31/7 |Bad Debts |750 |

| | | |31/7 | Bank |750 |

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SALES RETURNS

|DATE |PARTICULARS |AMOUNT |DATE |PARTICULARS |AMOUNT |

|31/7 |Debtors Control |800 | | | |

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QUESTION 2

2.1 What is the difference between product and period costing?

|Product costing builds into the actual cost of stock extra costs incurred to get the stock into a condition and location ready for sale in my business (BUYING |

|costs) that can be allocated to individual stock items on a logical/mathematical basis. The cost of the stock is not just its invoiced amount but also those |

|additional costs. |

|Period costs also refer to BUYING expenses (costs incurred to get the stock into a condition and location ready for sale in my business) BUT are those costs that |

|CANNOT be allocated to individual stock items – there is not logical/mathematical way of doing it. The total amount of these costs are listed under cost of goods |

|sold as a buying expense and the full amount charged out in this reporting period as a period cost. |

|The difference between product and period costs rests on whether the cost can be allocated to individual stock items on a logical/mathematical basis. |

|Product costing means these additional costs are recognized only as we sell the stock on a per item basis but with period costing the full amount is costed out in |

|the first reporting period. If only part of the stock is sold in the first period the profit will be higher under product costing. Period costing makes the profit |

|lower as the whole amount is recognized in the first reporting period. |

2.2 At what cost should the pot plants be recorded?

|PLANTS $15 + SOIL MIX $3 + LABOUR COSTS $2 + NEW POTS $5 + LABELLING $1 = $26 |

|All these items are buying expenses (expenses to get the stock into my business in a condition fit to sell) and can the allocated on a per unit basis with amounts |

|that would be considered relevant. |

|Don’t include advertising NOT a buying expense – it is a selling expense. List under Other Expenses. |

2.3 Harriet’s Pot Plants

Extract Income Statement for month ending 31August 2014

REVENUE

SALES REVENUE $2500 ($50 X 50)

LESS COST OF GOODS SOLD

COST OF SALES $1300 ($26 X 50)

GROSS PROFIT $1200

Less Sock Loss $26

ADJUSTED GROSS PROFIT $1 174

QUESTION THREE

|Pot Plant Type |Quantity |Cost Price $ |Selling Expenses $ |Likely selling price $ |NRV | |

|A |10 |15 |0 |10 |10 |STOCK WRITE DOWN $5 PER ITEM |

|B |10 |10 |5 |15 |10 |DO NOTHING |

|C |10 |20 |10 |25 |15 |STOCK WRITE DOWN $5 PER ITEM |

3.1 What is meant by the term net realisable value?

|Net realisable value is the selling price of stock LESS any specific costs involved in the selling, marketing and distribution of that particular stock item. |

|For example product C $25 minus $10 gives an NRV of $15 |

3.2 TYPE A 10 X $5 = $50 STOCK WRITE DOWN NRV is $5 less than cost price

TYPE B 10 X $5 = $50 STOCK WRITE DOWN NRV is $5 less than cost price

GENERAL JOURNAL

|DATE |PARTICULARS (relevant ledger accounts) |DR |CR |DR |CR |

|31/8 |Stock Write Down |100 | | | |

| | Stock Control | |100 | | |

| |Stock write down Memo 21 | | | | |

3.3 Discuss the impact on Harriet’s accounting reports if she failed to record the stock write down?

|This would mean in her Income Statement expenses (Stock Write Down expense) would be understated by $100 because of this her profit would be overstated by $100. In|

|her balance sheet her current asset Stock Control would be overstated by $100 (she is missing the reduction in this account from the stock write down and her Owners|

|Equity would be overstated as she did not have the stock write down expense and the profit brought over would be overstated by $100. As there is no cash involved |

|her Cash flow statement would not be effected. |

QUESTION 4 4.1

|15% of $20000 = $3000 per year depreciation expense |

|For 2 years accumulated depreciation = $6000 |

4.2

|25% of $20000 = $5000 for Year One Subtract $5000 from 20000 to get reduced balance of $15000 and this is the carrying value I use for year two calculation |

|25% of $15000 = $3750 for Year Two |

|For 2 years accumulated depreciation = $8750 |

4.3

|Depreciation represents the allocation of the cost of a non-current asset over its useful life. |

|STRAIGHT LINE DEPRECIATION method allocates the same amount of depreciation expense for its useful life (in the example above $3000 every year). It assumes the |

|consumption of the NCA is the same in every year of its useful life. |

|REDUCING BALANCE DEPRECIATION method allocates more depreciation expense in the first years of the life of the NCA and less in the later years. This is done by |

|identifying the appropriate depreciation rate (%) using this to calculate the first years depreciation. Subtracting this from the historical cost to get a new |

|carrying value (the reduced carrying value balance) and recalculating the depreciation expense using the same rate but from this lower carrying value. This |

|process is continued over the useful life of the item. |

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|She should use the method most appropriate to the nature of the item and its rate of consumption. If items are consumed at an even rate over their useful life |

|then straight line is the most relevant approach and this is the case with fixtures and fittings. Reducing balance is more appropriate to items with mechanical |

|parts that are consumed at a greater rate early in their useful life but at a lesser rate as more time passes. |

5.1 GENERAL JOURNAL

|DATE |PARTICULARS (relevant ledger accounts) |DR |CR |DR |CR |

|31/7 |Disposal of Fixtures and Fittings |20 000 | | | |

| | Fixtures and Fittings | |20 000 | | |

| |Transfer fixture and fittings to Disposal a/c Memo. | | | | |

| |Accum Dep – Fixtures and Fittings |9 000 | | | |

| | Disposal of Fixtures and Fittings | |9 000 | | |

| |Transfer Accum Dep on Fixture and Fittings to Disposal account. Memo | | | | |

| |Sundry Creditor – Supa Display Trading |13 000 | | | |

| | Disposal of Fixtures and Fittings | |13 000 | | |

| |Trade in fixtures/fittings on credit purchase new items Invoice | | | | |

| |Disposal of Fixtures and Fittings |2 000 | | | |

| | Profit on Disposal Fixt. and Fitt. | |2 000 | | |

| |Transfer profit on disposal of fixtures and fittings Memo | | | | |

| |Fixtures and Fittings * |25 000 | | | |

| |GST Clearing |1 500 | | | |

| | Sundry Creditor – Supa Display | |25 500 | | |

| |Purchase fixtures and fittings on credit Invoice | | | | |

* Installation charges are built into the cost of the Fixtures and Fittings

5.2

FIXTURES AND FITTINGS

|DATE |PARTICULARS |AMOUNT |DATE |PARTICULARS |AMOUNT |

| |Balance |20 000 |31/7 |Disposal of Fixture and Fittings |20 000 |

|31/7 |Sundry Creditor – Supa |25 000 | | | |

DISPOSAL OF FIXTURES AND FITTINGS

|DATE |PARTICULARS |AMOUNT |DATE |PARTICULARS |AMOUNT |

|31/7 |Fixtures and Fittings |20 000 |31/7 |Accum Dep – Fixtures and Fittings |9000 |

|31/7 |Profit on Disposal – Fixtures and |2 000 |31/7 |Sundry Creditor – Supa |13000 |

| |Fittings | | | | |

| | |22000 | | |22000 |

5.3

|REASON ONE: Harriet has over depreciated her fixtures and fittings. When she originally identified her annual depreciation figures she was not accurate – she |

|underestimated the residual or scrap value she gave to the items and so has depreciated by a greater amount than the subsequent sale indicated would have been |

|appropriate. |

|REASON TWO: The fixtures and fittings were in excellent condition so Harriet got a very good price for them on trade in better that she had originally |

|thought possible OR the firm she brought the new fixtures and fittings from have offered her a particularly good price to get her to buy the new ones from them. |

QUESTION 6

6.1

|Interest = 1,800 for year = 150 per month |

|By 30 June you have earn 4 months worth of interest (for March, April, May and June) |

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|INTEREST EARNT $600 |

6.2 GENERAL JOURNAL

|DATE |PARTICULARS |GENERAL LEDGER |SUBSIDARY LEDGER |

| | |DR |CR |DR |CR |

|30/6 |Accrued Interest Revenue |600 | | | |

| | Interest Revenue | |600 | | |

| |BDA for interest earnt but not yet received | | | | |

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6.2 ACCRUED INTEREST REVENUE

|DATE |PARTICULARS |AMOUNT |DATE |PARTICULARS |AMOUNT |

|30/6 |Interest Revenue |600 |30/9 |Cash at Bank |600 |

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INTEREST REVENUE

|DATE |PARTICULARS |AMOUNT |DATE |PARTICULARS |AMOUNT |

| | | |30/6 |Accrued Interest Revenue |600 |

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| | | |30/9 |Cash at Bank |450 |

6.3 CASH RECEIPTS

|DATE |PARTICULARS |REC |BANK |COST |SALES |

| | |NO | |SALES | |

|31/3 |Sales Revenue |3200 |31/1 |Bank |3200 |

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7.2 GENERAL JOURNAL

|DATE |PARTICULARS |GENERAL LEDGER |SUBSIDARY LEDGER |

| | |DR |CR |DR |CR |

|31/3 |Prepaid Sales Revenue |3200 | | | |

| | Sales Revenue | |3200 | | |

| |Cost of Sales |1000 | | | |

| | Stock Control | |1000 | | |

| |BDA for revenue now earnt Memo No | | | | |

SALES REVENUE

|DATE |PARTICULARS |AMOUNT |DATE |PARTICULARS |AMOUNT |

| | | |31/3 |Prepaid Sales Revenue |3200 |

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7.3

|The cash collected for the plants prior to any delivery of plants cannot be recognized as revenue as it has not yet been earnt (The firm has not yet met its |

|contractual requirements). Though it may be considered as an inflow of an economic benefit it does not increase owner’s equity YET and CANNONT BE RECORDED AS |

|REVENUE. The cash collected actually represents a present economic obligation of the firm which will involve a sacrifice as I have not yet done what I am |

|required to do (provide PLANTS) and as such is a current liability that we call Prepaid Sales Revenue. |

UNIT 4 GENERAL JOURNAL ENTRIES (actual transaction date is used)

|DATE |PARTICULARS (relevant ledger accounts) |DR |CR |DR |CR |

| |SALES RETURN | | | | |

| |GST Clearing |200 | | | |

| | Debtors Control | |2200 | | |

| | Debtor - Smith | | | |2200 |

| |Stock Control |1000 | | | |

| | Cost of Sales | |1000 | | |

| |Sales return 10 items Memo No | | | | |

| |Creditor - Jones | | |1100 | |

| | Stock Control | |1000 | | |

| | GST Clearing | |100 | | |

| |Purchase return 10 items Memo No | | | | |

| | Stock Control | |300 | | |

| |Stock write down 3 items Memo No | | | | |

| | Accum. Dep. – Motor Vehicle | |350 | | |

| |6 months depreciation (straight line) on vehicle Memo No | | | | |

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| |DISPOSAL OF A NON CURRENT ASSET | | | | |

| | Motor Vehicle | |25000 | | |

| |Accum Dep – Motor Vehicle |6350 | | | |

| | Disposal of Motor Vehicle | |6350 | | |

| |Sundry Creditor - Name |17000 | | | |

| | Disposal of Motor Vehicle | |17000 | | |

| |Disposal by trade in on new credit purchase of Motor Vehicle Memo No. | | | | |

| |Loss on Disposal of Motor Vehicle (E) |1650 | |Loss is made if trade in value is |

| | | | |less than carrying value. Profit is|

| | | | |made if trade in value is higher |

| | | | |than carrying value |

| | Disposal of Motor Vehicle | |1650 | |

| |OR | | | |

| |Disposal of Motor Vehicle |X | | |

| | Profit on Disposal of Motor Vehicle (R) | |X | |

| |Loss/profit on disposal of motor vehicle Memo No. | | | |

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| |CREDIT PURCHASE OF A NON CURRENT ASSET | | | | |

| |GST Clearing |3200 | | | |

| | Sundry Creditor – Name | | 35200 | | |

| |Credit Purchase Motor Vehicle Memo No | | | | |

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| |BDA FOR PREPAID SALES REVENUE | | | | |

| | Sales Revenue | |2000 | | |

| |BDA for sales revenue now earned Memo No | | | | |

| | Interest Revenue | |750 | | |

| |BDA for 3 months interest earned but not yet received. Memo No | | | | |

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