CH7 - Accruals & Prepayments

Question 1

Joan’s draft final accounts were prepared including a prepayment for rent of $970. The prepayment should have been $1,170.

Answer 1

Net profit will increase by $200

Understated by 200
When corrected,
Expense decrease by 200
Profit increase by 200

Question 2

Loss $1,486
Did not included accrual of $1,625 & prepayment of $834.
Subsequently, adjusted the accounts to reflect the accrual and prepayment

What was profit or loss?

Answer 2

Expenses
834 1625
SOPL 791

LOSS $1,468 + $791 = $2,277 LOSS

Question 3

Alan prepared his draft final accounts, but did not adjust these for a prepayment of $1,500 and an accrual of $400.

How will Alan’s profit and net assets be affected by including the prepayment and accrual?

Answer 3

Net profit will Increase by $1100
Net assets will Increase by $1100

Question 4

At the year end a bookkeeper correctly records the accrued electricity dur of $650 as a balance c/d on the debit side within the electricity account.

In respect of this balance c/d of $650, at the start of the following period, what entry is needed in the electricity account?

Answer 4

Credit Electricity account (SOFP) $650

Question 5

Hannan calculated that his profit for the year was $65,285. She then found that she had treated an accrual of $189 as a prepayment.

When she corrects the error, what is her revised profit for the year?

Answer 5

$64,907

Double the amount
Profit kena tolak as the expenses bertambah

Question 6

Set up & increase allowance double entry

Answer 6

Dr irrecoverable debt expenses
Cr allowances for receivable

Question 7

Reduce allowance double entry

Answer 7

Dr allowance for receivables
Cr irrecoverable debt

Question 8

Irrecoverable debt recovered (received before the year end)

Answer 8

Dr receivables
Cr irrecoverable debts expense

Dr bank
Cr Receivable

Question 9

Definition of PROVISION

Answer 9

a liability of UNCERTAIN AMOUNT & TIMING.

Question 10

Provision should only be recognized when:

Answer 10

1. An entity has PRESENT OBLIGATION (legal/constructive) as a results of a past event.
2. It is probable that an outflow of economic resources will be required to settle the obligations
3. A reliable estimate can be made of the amount of the obligation

Question 11

Cost of an asset

Answer 11

1. Purchase price - after deducting trade discounts and rebates & ADDing duties and non-refundable taxes.
2. Cost directly attributable to bring the asset to its location and to make it available for its intended use.
3. Dismantling cost - cost of removing old asset from its place in order to put in the new one. [Modification]

Question 12

Acquire NCA double entry

Answer 12

Cheque payment
Dr NCA
Cr Bank

Loan
Dr NCA
Cr Payable - loan

Finance lease
Dr NCA
Cr Payable - lease

Question 13

Residual value = Scrap value = Salvage value