UNIT 05. Financial Statements with Adjustments...Details of Accrued expenses of Tharindu’s...

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UNIT 05. Financial Statements with Adjustments

Nature of Income and Expenses

Income

Money earned or yet to be earned Because of selling goods and services is called Income.

Eg: Sales Income, Commission Income, Discount received, Rent Income, Interest Income, etc.

Expenses

Daily Expenses of a Business can be categorize as follows.

1. Capital Expenditures

2. Revenue Expenditures

1. Capital Expenditures

If there is a long term benefit that could gain by a particular outflow of money, those expenses of money is

called Capital Expenditures. These are not considering when calculating profit, since these outflows

regards to Fixed Assets.

Purchasing of Fixed Assets like Lands, Buildings, Motor Vehicles, etc.

Expenses of Installation of machines in the business

Transportation cost of a machine.

2. Revenue Expenditures

Expenses that generates through daily operations of the Business. These are considering when calculating

profit.

Electricity Expenses

Insurance Expenses

Telephone Charges

Rent Expenses

Advertising Expenses

Transportation Expenses

Employee Salary

Purchasing of Stocks

Accounting Concepts which affect for the Preparation of Financial Statements

1. Business Entity Concept

This persuade that business is an independent unit which separate from their owners.

Eg: Goods and money taken by the owner for personal use is considered as drawings. (That means

Owner’s Personal matters not regards to business operations.

2. Accrued Concept

Whether a particular income or expense earned or paid in cash, in accounting it’s considered the

amount which belongs to the relevant accounting period.

Eg : Electricity expense for the month of January 2018 is Rs 8,000. But for the month they have paid Rs

10,000. But when you prepare add this expense to profit or loss statement, we consider only Rs 8,000

as monthly electricity expense.

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Adjustments Entries that enters in to the accounts in order to get the accurate value in Financial Statements.

These adjustments record in General Journal.

Different Adjustment Entries

1. Accrued Expenses.

2. Accrued Income. (Income receivables).

3. Bad Debts

4. Depreciation of Fixed Assets.

1. Accrued Expenses

Accrued Expenses are Liabilities for the Business.

Relevant Expense Account Dr

Accrued Expense Account Cr

Example:

Electricity expense for 31.12.2019 is Rs 80,000. But only Rs 71,000 has paid as electricity expenses.

Workings:

80,000

01.01.2019 31.12.2019

71,000 (paid) 9,000 (Not Paid –Accrued Electricity Expense)

General Journal

Date Description Dr Cr

Electricity Account Dr Accrued Electricity Account

9,000

9,000

Electricity Expense Account Cash

Cash 71,000 Electricity 71,000

Acc. Elec 9,000 Profit or Loss a/c 80,000

80,000 80,000 Accrued Electricity Expense Account

Electricity 9,000

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Example 02:

Given below are some data extracted from Trial Balance of Tharindu’s Business for the year ended 31.12.2019

Insurance Premium Rs 4,000

Salary of Trade Employees Rs 80,000

Bank Loan Interest Rs 5,000

Details of Accrued expenses of Tharindu’s Business for the year ended 31.12.2019 is given below.

1. Annual Insurance premium is Rs 6,000. But has only paid Rs 4,000.

2. Accrued Electricity payment for the year is Rs 15,000.

3. Monthly Salary of trading employees is Rs 8,000, and only paid for 10 months.

4. Bank Loan Rs 50,000 of 12% interest has been taken at 01.01.2019. Bank Loan interest for 2 months has not yet

paid till 31.12.2019.

General Journal

Date Description Dr Cr

1 2 3 4

Insurance Premium Account Dr Accrued Insurance Premium Account (Recording Accrued Insurance of Rs 2,000) Electricity Expense Account Dr Accrued Electricity Account (Recording Accrued Electricity of Rs 15,000) Salary Account Dr Accrued Salary Account (Recording Accrued Salary of Rs 16,000) Bank Loan Interest Account Dr Accrued Bank Loan Interest Account (Recording Accrued Bank Loan Interest)

2,000 15,000 16,000 1,000

2,000 15,000 16,000 1,000

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Cash Account

Insurance 4,000

Salary 80,000

Bank Loan Int. 5,000

Insurance Premium Accrued Insurance Premium

Cash 4,000 Insurance 2,000

Acc. Insurance 2,000 P& L Account 6,000

6,000 6,000

Electricity Expenses Accrued Electricity Expense

Acc. Electricity 15,000 Electricity 15,000

P&L Account 15,000

15,000 15,000

Salary of Trade Employees Accrued Salary of Trade Employees

Cash 80,000 Salary 16,000

Acc. Salary 16,000 P&L 96,000

96,000 96,000

Bank Loan Interest Accrued Bank Loan Interest

Cash 5,000 B.Loan Interesrt 1,000

Acc. B. Loan Int. 1,000 P&L 6,000

6,000 6,000

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Extraction of Financial Statements

Profit or Loss Account

Distribution Expense Salary of Trade Employees (80,000 + 16,000) Administration Expense Insurance Premium (4,000 + 2,000) Electricity Expense Financial Expense Bank Loan Interest (5,000 +1,000)

96,000 6,000 15,000 6,000

Statement of Financial Position

Current Liabilities Accrued Insurance Premium Accrued Electricity Expense Accrued Trade Employees Salary Accrued Bank loan Interest

2,000 15,000 16,000 1,000

Activity 01

Accounting period of Nayani’s Business ends at 31.12.2018. Following transactions were occurred.

1. Monthly building rent is Rs 5,000, but they have paid only for 8 months.

2. Rs 18,000 paid as electricity bill, another Rs 3,000 has not yet paid.

3. Bank Loan has obtained as at 01.01.2018 Rs 80,000 for 12 months. Interest for month of December has not yet

paid.

4. Accrued telephone charges as at Rs 31.12.2018 is Rs 3,000.

5. Carriage inwards Rs 2,000 is to be paid.

6. The annual stationary expenses is Rs 19,000, but only Rs 5,000 has been paid.

Required:

I. Calculate the correct value for the expenses account and note in the chart.

Expense Account Amount Paid in cash Accrued Expenses Expenses relevant for the adjustments

1. 2. 3. 4. 5. 6.

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II. Write the correct double entry for the adjustments required.

Transaction Account to debit Account to credit

1. 2. 3. 4. 5. 6.

III. Indicate the Journal Entries for the adjustments and record transactions in the ledger accounts.

IV. Show the Extraction of Financial Statements.

2. Accrued Income (Income Receivables)

Income which belongs to a certain accounting period but not yet received in cash.

Income Receivables Account Dr (Asset)

Relevant Income Account Cr

Example 1

Business has rented their part of the building for a monthly rent Rs 5,000. But only Rs 50,000 has received as a rent

income for the year ended 31.12.2020.

Annual Rent Income 5000 12 = 60,000

Rent received 5000 10 = 50,000

Accrued Rent Income 10,000

General Journal

Date VN Description Dr Cr

31/12 Rent Income receivable Dr Rent Income (Adjusting rent income receivables Rs 10,000)

10,000

10,000

Cash Account Rent Income Account

Rent 50,000 Cash 50,000

P&L 60,000 Rent Receivables 10,000

60,000 60,000

Rent Income Receivable

Rent Income 10,000

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Profit or Loss Account / Statement

Other Income Rent Income

60,000


Current Assets Rent Income receivable (Accrued Rent Income)

10,000

Example 2:

The accounting period of Parami’s Business ends at 31.12.2019. Given below are some data extracted from Trial

Balance.

Rent Income Rs 12,000

Fixed Deposits Interest Rs 8,000

Additional Information:

1. Rent Income of Rs 12,000 has been received and rent income of Rs 3,000 is yet to be received.

2. A fixed deposit of Rs 120,000 at an interest of 10% has been opened on 01.04.2019 and the interest income has

been accrued for the month of December.

Workings:

1. Annual Rent Income (12,000 + 3,000) = Rs 15,000

Accrued Rent Income = Rs 3,000

02. 01/01 3 month 01/04 9 months 31/12

Annual FD Rate (120,000 *10%*3/4) = Rs 9,000

Accrued FD Interest Income (9000/9) = Rs 1,000 (Since one month Income is accrued)

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General Journal


31/12 31/12

Accrued Rent Income Account Dr Rent Income Account (Adjustment of Rent Income receivable Rs 3,000) Accrued Fixed Deposit Interest Income Account Dr Fixed deposit interest income Account (Adjustment of FD Interest Income receivables)

3,000 1,000

3,000 1,000

Cash Account

Rent Income 12,000

Interest Income 8,000

Rent Income Account Rent Income Receivable Account (Accrued Rent)

Cash 12,000 Rent Income 3,000

Rent Receivable 3,000

Interest Income Account Interest Income Receivables (Accrued Interest)

Cash 8,000 Interest Income 1,000

Interest Receivable 1,000


Profit or Loss Account

Other Income Rent Income(12,000 +3,000) Interest Income (8,000+1,000)

15,000 9,000

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Current Assets Rent Income Receivable Interest Income Receivable

3,000 1,000

Activity 02

Following Information extracted from Trial Balance of Dilhara’s Business for the year ended 31.12.2019

Rent Income Rs 48,000

Interest Income Rs 4,000

Dividend Income Rs 6,000


1. Rent Income has received only for 8 months.

2. Rs 50,000 deposited in the Fixed Deposits on 01.05.2019, Rs 2,000 of Interest Income is to be received for the

period.

3. Only 6,000 has received out of Rs 8,000 dividend income.

4. Sales commission receivables for the year is Rs 4,000.

Required:

I. Calculate the proper values and record them in the relevant columns.

Transaction Income received in cash Rs

Accrued Income Rs

Income Relevant to the Accounting period

1. 2. 3. 4.

II. Write the correct journal entries including the value for the adjustment to be done.

Transaction Account to Debit Rs Account to Credit Rs

1. 2. 3. 4.

III. Prepare and record the adjustments in the general journal and post them to the ledger accounts.

IV. Show the extraction of Financial Statements.

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3. Bad Debts

When an Organization cannot recover the money from debtors due to any reason, such unrecoverable amount is called

bad debts

Bad debts is an expense for the business.

Bad debt account Dr (Expense)

Debtors account Cr (Asset)

Since, bad debt is an expense, bad debt account debit because its increasing, and because of bad debt debtors are

decreasing, so debtors credit.

Reason for Having Bad Debts

Debtors become Bankrupt

Death of a Debtor

Mental disorders of debtors

Example:

Total debtor balance of Lasantha’s Business is as at 31.03.2018 was Rs 100,000. Deepal was a debtor of Lasantha’s

business which has an outstanding of Rs 5,000. That balance finally decided to remove as a bad debt by Lasantha, since

it confirmed that value is not going to received, as deepal has been bankrupted.

General Journal


31.03 Bad Debts Account Dr Deepal (Debtor) Account (Rs 55000 written off as Bad Debts)

5,000 5,000

Bad Debt Account Deepal Account

Deepal 55,000 B/B/F 5,000 Bad Debts 5,000


Profit or Loss Statement

Distribution Expenses Bad Debts

55,000

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Current Assets Debtors (100,000 – 5,000)

95,000

4. Depreciation of Fixed Assets

Examples:

Buildings

Motor Vehicles

Machineries

Equipment

Furniture

Computers

What do you mean by Depreciation?

If a cost of a machine is Rs 100,000, if it’s assumed that it can be used for only 10 years, then thereafter no value, we

divide that Rs 100,000 along that useful life of 10 years. (100,000/10 = 10,000) and that Rs 10,000 which is allocated for

one year is considered as an expense.

In Accounting, this process is called Depreciation.

Total cost of an asset comprised of all the cost incurred for bringing the asset to the present location and usable

condition. Since, they are long term, these assets can be sold at the end of the life of the asset and the amount obtained

is known as Scrap Value.

Example:

Cost of the Machine Rs 500,000

Scrap Value Rs 100,000

Useful Life 5 Years

According to the above information, at the end of the 5 years, this asset is not anymore useful for the business, but it is

estimated that, this asset can be sold for Rs 100,000 at the end of 5 years (Scrap Value). Therefore the difference

between the cost Rs 500,000 and Scrap value Rs 100,000 of Rs 400,000 is considered as irrecoverable portion

(Depreciable Value), it should be divided among 5 years of time (400,000/5 = 100,000). The expense that related to one

year is considered as Annual Depreciation.

Annual Depreciation = Cost – Scrap Value

Estimated Useful Life

= 500,000 – 100,000 = Rs 100,000 (Annul Depreciation – Expense)

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Factors that consider in Annual Depreciation

1. Cost of the Asset

2. Estimated Useful Life of the Asset

3. Scrap Value

Cost of the Asset

The cost of assets include the purchase cost of an asset and the costs incurred in bringing the asset to the present

location and usable condition.

Example:

Purchase Cost of the machine Rs 200,000

Carriage Inward Cost Rs 20,000

Installation Cost Rs 30,000

Total Cost of the Machine Rs 250,000

Methods of Depreciation

1. Straight line Method

2. Reducing Balance Method

Straight Line Method

Distributing the depreciable value along the useful life is considered here.

Annual Depreciation = Cost – Scrap Value

Estimated Useful Life

Depreciable Value = Cost - Scrap Value

If they haven’t given any scrap value, cost of the asset equals to depreciable value

Annual Depreciation = Depreciable Value

Estimated useful life

Calculating the Annual Depreciation as a percentage

Percentage (Ratio) = Annual Depreciation (in amount) 100

Cost

Example:

Cost of the Machine Rs 900,000


Useful Life 9 Years

Annual Depreciation = (900,000 – 90,000) 100

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= 10 %

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Sometimes the question might ask you to calculate annual depreciation by giving the ratio, in that case you can get

the answer as follows,

Example:

Cost of Furniture Rs 50,000


If this furniture depreciated 10% annual on straight line method, calculate the annual depreciation.

Answer:

Annual Depreciation = (50,000 – 5,000) * 10% = Rs 4,500.

Accounting for Depreciation

Double Entry for Annual Depreciation

Relevant Depreciation Account Dr

Accumulated Depreciation Account Cr

Accumulated Depreciation

Values of annual depreciations accumulated for a particular beginning of an accounting period is called accumulated

depreciation.

1. Machine Purchased Rs 500,000 on 01.01.2016 depreciated annually at 10%. So, total of annual depreciation

accumulated for beginning of each years can be calculated as follows.

Annual Depreciation = 500,000 * 10% = Rs 50,000 (Each year it depreciated by Rs 50,000).

01.01.2016 01.01.2017 01.01.2018 01.01.2019 01.01.2020 01.01.2021………….

50,000 50,000 50,000 50,000 50,000

Always accumulated depreciation for 1st year of depreciation is equals to the Annual Depreciation, According to

this situation our accumulated depreciation for 1st year (as at 01.01.2017) is Rs 50,000.

Accumulated depreciation for 2nd year (as at 0.01.2018) = 50,000 *2 = Rs 100,000 (50,000 + 50,000)

Accumulated Depreciation for 3rd Year (as at 01.01.2019) = 50,000 * 3 = Rs 150,000 (100,000 + 50,000)

Accumulated Depreciation for 4th Year (as at 01.01.2020) = 50,000 * 4 = Rs 200,000 (150,000 + 50,000)

Presenting the Non – Current Assets in the Statement of Financial Position

Non – Current Assets Cost Accumulated Depreciation Net Value

Lands Buildings Motor Vehicles Furniture Equipment

XXX XXX XXX XXX XXX XXX

_

XXX

XXX XXX XXX XXX XXX

XXXX

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Example:

The accounting period of Wathsala’s Business ends at 31.12.2019. The Non-current Assets of the business are

depreciated using the straight line method annually at 10% and the business maintains an accumulated depreciation

account.

The Non-Current Assets which were purchased on 01.01.2019 are given below;

Motor Vehicles (at Cost) Rs 800,000

Machinery and Equipment Rs 250,000

Will see how we can record the annual depreciation in the general journal and in ledger accounts

General Journal

Date Voucher No:

Description LF Dr Rs.

Cr Rs.

31.12.2019 001 002

Motor Vehicle Depreciation Acc. Dr Accumulated Motor Vehicle Depreciation Acc. (Recording Annual Motor Vehicle Depreciation) Machinery Depreciation Account Dr Accumulated Machinery Depreciation Account (Recording Annual Machinery Depreciation)

80,000 25,000

80,000 25,000

Motor Vehicle Account Motor Vehicle Depreciation Account

01.01 Cash 800,000 31.12 Acc. Motor Vehicle dep. 80,000

Accumulated Motor Vehicle Depreciation Account

31.12 M/V Dep 80,000

Machinery Account Machinery Depreciation Account

01.01. Cash 250,000 31.12 Acc. Machin. Dep. 25,000

Accumulated Machinery Depreciation Account

31.12 Machinery Dep. 25,000

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Distribution Expenses Depreciation of Motor Vehicle Administration Expenses Depreciation of Machine

80,000 25,000


Activity 03

Accounting Period of Samanmali’s Business is from 01.01.2018 to 31.12.2018. Following Information has provided.

Purchasing cost of Machine Rs 300,000

Carriage Inwards Rs 20,000

Installation cost Rs 90,000

Useful Life 10 Years


Assume that this machine has purchased at 01.01.2016

Required:

1. Calculate the Cost of the Machine

2. Depreciable Value

3. If the straight line method is used,

a. The annual Depreciation amount and post the double entry for annual depreciation in General Journal.

b. Calculate the Accumulated depreciation as at 01.01.2018.

c. Prepare the Ledger accounts.

Cost Accumulated Depreciation

Net Value

Motor Vehicle Machineries

800,000 250,000

(80,000) (25,000)

720,000 225,000

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Preparation of Financial Statements with Adjustments

Example:

Given below is the Trial Balance of Kalum’s Business for the year ended 31.12.2012

Description Debit Credit

Sales Purchase Discount Received Discount Allowed 2012.01.01 Stock Electricity Sales employees’ salaries Rent Income Carriage Inwards Land Buildings Buildings Accumulated Depreciation (2012.01.01) Debtors Creditors Cash Capital

180,000

_ 13,000 30,000 12,000 10,000

_ 8,000

300,000 300,000

_ 10,000

_ 12,000

_ 875,000

400,000

10,000

15,000

60,000

15,000

375,000

875,000


1. 2012.12.31 Stocks Rs 25,000

2. Annual Building Depreciation 10%

3. Accrued electricity Rs 2,000

Required:

1. Profit or Loss Statement for the year ended 31.12.2012

2. Statement of Financial Position as at 31.12.2012

Workings:

1). Closing Stock should adjusted to Trade Account and Likewise it should be adjusted under current assets

2). Annual Building depreciation = 300,000 *10% = Rs 30,000 (Record under administration expense in p&l)

Accumulated depreciation as at 31.12.2012 = Accumulated Depreciation (01.01.2012) + Annual Depreciation

= 60,000 + 30,000

= Rs 90,000 (Recorded in Accumulated Depreciation Column

In Statement of Financial Position)

3). Accrued Electricity Rs 2,000 recorded under Current Liabilities in Statement of Financial Position.

Annual Electricity payment of Rs 14,000 (12,000 + 2,000) Recorded Under Administration expense

In Profit or Loss Statement.

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1.

Business of Kalum’s


For the Year Ended 31.12.2012

Sales Cost of Sales Opening Stock + Purchasing Loading Expense Carriage Inwards Cost of Goods to be Sold -) Closing Stock Cost of Sales Gross Profit + Other Income Discount Receives Rent Income -) Expenses Distribution Expense Discount Allowed Sales Employees’ salary Administration Expense Building Depreciation Electricity Expense (12,000 + 2,000) Other Expenses Financial Expenses Net Profit

13,000 10,000

30,000 14,000

30,000 180,000

_ 8,000

218,000 (25,000)

10,000 15,000

23,000

44,000

400,000

(193,000) 207,000

25,000 232,000

(67,000)

165,000

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2.

Business of Kasun

Statement of Financial Position as at 31.12.2012

Non-Current Assets Land Building Current Assets Closing Stock Debtors Cash Total Assets Equity and Liability Capital as at 01.01.2012 + Profit Non – Current Liabilities Current Liabilities Accrued Electricity expense Creditors Equity and Liability

Cost Accumulated Depreciation

Net Value

300,000 300,000

_

(90,000)

25,000 10,000 12,000

375,000 165,000

2,000 15,000

300,000 210,000

47,000 557,000

540,000

17,000

557,000

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Activity 04

Following information belongs to Karunarathna’s Business for the year ended 30.06.2011

Description Debit Credit

2010.07.01 Stock Capital Sales Purchase Discount received Discount Allowed Carriage Inwards Insurance Commission received Advertising Bank Charges Salaries & Wages Bad Debts Lands Motor Vehicle Motor Vehicle Depreciation (2010.07.01) Debtors Cash Creditors

40,000

20,000 5,000

14,000

18,000 2,000

12,000 3,000

350,000 200,000

25,000 40,000

934,000

384,000 380,000

10,000

80,000

30,000

50,000 934,000


1. 2011.06.30 stock Rs 35,000

2. Commission receivables Rs 4,000

3. Accrued Advertising expense Rs 3,000

4. Motor Vehicle should be depreciated 5% annually

Required:

1. Profit or Loss Account for the year ended 2011.06.30


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Activity 05

Following information belongs to Hemaka’s Business for the Year ended 30.09.2013

Description Dr Cr

Capital 2012.10.01 Stock Machineries Sales Purchase Carriage Inwards Discount Received Discount Allowed Shipping and Loading Expenses Debtors Creditors Bad Debts Electricity Rent Income Building repair expense Advertising Trading Employees’ Salaries Bank Charges Bank Overdraft Interest Pawing Loans Cash 2012.10.01 Capital

15,000

200,000

170,000 5,000

8,000 2,000

22,000

3,000 11,000

12,000 8,000 6,000 1,000 1,500

20,000

9,500

320,000

10,000

30,000

45,000

60,000

10,000

484,500 484,500


1. 2013. 9.30 Stock Rs 20,000

2. Bad debts Rs 2,000

3. Machinery Depreciation 5% Annually

4. Rent Income receivable Rs 5,000.

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Activity 06

The accounting period of Kanishka’s Business ends on 31.12.2019. The trial balance as at 31.12.2019 is given below

Description Dr (Rs) Cr (Rs)

Sales Inventory as at 01.01.2019 Purchases Machinery (at cost) Delivery Motor Vehicle (at cost) Trade Debtors Trade Creditors Bank Loan 10% Payable after 4 Years Bad debts Accumulated Depreciation as at 01.01.2019 Motor Vehicles Machinery Drawings Fixed Deposits (5 years) Stationary Expenses Electricity Selling Expenses Cash Capital as at 01.01.2019

18,000

230,000 80,000

600,000 36,000

4,000

18,000 80,000

9,000 12,000 35,000 18,000

520,000

44,000 120,000

90,000 16,000

350,000

1,140,000 1,140,000


1. Closing Stock as at 31.12.2019 is Rs 24,000

2. The fixed deposit balance is available from the beginning of financial period.10% annual interest rate is

applicable for the fixed deposit.

3. Interest for the bank loan for the year end 31.12.2019 has been accrued.

4. It has been decided to write off further Rs 2,000 as bad debts.

5. Depreciation has to be provided annually at 10% on Motor Vehicles and Machineries

Required:

1. Profit or Loss Statement of Kanishka’s Business for the Year ended 31.12.2019


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Activity 07

The trail balance as at 31.12.2018 of Sahan’s Business is as follows.


Capital 2018.01.01 Purchases and Sales Trade debtors and trade creditors Administration Expenses Sales Staff Salaries Carriage Inwards Closing Stock as at 01.01.2018 Discount given and discount received Fixed deposit at 8% Travelling Expenses Delivery Vehicles (at cost) Sales promotional expenses Furniture and Fittings (at Cost) Bank Loan at 12% (Payable after Years) Bank Interest paid in cash Accumulated Depreciation as at 01.01.2018 Delivery Vehicles Furniture Electricity Cash in Hand

340,000

65,000 34,000 42,000 12,000 28,000

5,000 150,000

5,000 500,000

7,000 60,000

12,000

8,000 44,000

300,000 660,000

82,000

8,000

200,000

50,000 12,000

1,312,000 1,312,000


1. Value of Closing Stock as at 31.12.2018 is Rs 30,000

2. Accrued expenses as at 31.12.2018 are as follows;

Administration Expenses Rs 2,000

Electricity Rs 6,000

3. Write off Rs 1,000 as bad debts as at 31.12.2018

4. Depreciation should be provided at cost at 10% for the delivery vehicle and furniture and fittings annually.

Required:



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Activity 08

The trial balance of Nadeeka’s Business as at 31.12.2020 is given below.


Purchases Sales Buildings Equipment Accumulated Depreciation Buildings Equipment Loading Expenses Inventory as at 01.01.2020 Discount given Discount received Insurance expenses Sales promotional expenses Bank Loan Interest on Bank Loan Bad debts Trade debtors Trade Creditors Cash Capital as at 01.01.2020

350,000

300,000 40,000

13,000 30,000

8,000

6,000 42,000

8,000 4,000

70,000

292,000

725,000

45,000 6,000

5,000

80,000

52,000

250,000

1,163,000 1,163,000


1. Closing Stock Rs 40,000

2. Accrued Expenses as at 31.12.2020

Insurance Expense Rs 2,000

Sales and Promotional Expenses Rs 3,000

3. Building and equipment must be depreciated at 5% per annum.

Required:



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Activity

Accounting period of Sarani’s Business ends on 31.12.2018, the trial balance as at 31.12.2018 is given below.

Business of Sarani

Trial Balance as at 31.12.2018


Inventories as at 01.01.2018 Purchases Carriage Inwards Sales Rent Expenses Insurance Expenses Sales Promotional Expenses Salesman Salaries Discount given Discount received Bank Loan Interest Bank Charges Delivery Motor Vehicle Office Equipment Trade Debtors Trade creditors Bank Loan to be settled after 3 years Cash Fixed Deposit (5 years) Capital

6,000 185,000

4,000

20,000 8,000

14,000 30,000

4,000

6,000 2,000

300,000 40,000 17,000

20,000 70,000

350,000

9,000

32,000 50,000

250,000

726,000 726,000


1. Accrued Expenses as at 31.12.2018

Insurance expenses Rs 2,500

Rent Expenses Rs 4,000

2. Interest receivable as at 31.12.2018 is Rs 7,000

3. Rs 3,000 should be written off as bad debts from the trade creditors

4. Annual depreciation should be provided on the motor vehicle and office equipment on cost at 8% and 10%

respectively.

5. All Inventories has been sold out as at 31.12.2018

Required:

1. Journal Entries relating to the adjustments



UNIT 05. Financial Statements with Adjustments...Details of Accrued expenses of Tharindu’s...

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