Financial Accounting I – IV
BBA | BBA-BI | BBA-TT | BCIS 1st
PU 2004 Spring Q. No. 3a [8 marks]
For each of the following situations, prepare
i. Richard Photo purchased photo equipment on March 1, 2000 for Rs, 2,50,000. The equipment has an estimated useful life of ten years and an estimated salvage value of Rs. 10,000.
ii. On July 1, 2001, Rechard Photo received a deposit of Rs. 24,000 from customers. This sum represents an advanced paid by customers for the 12 month service contract.
iii. Richard Photo has a 90-day note receivable of Rs. 12,000, which was received on November 1, 2001. The interest rate is 12% per annum and interest and principal to be received at maturity.
iv. Richard Photo operates five days per week with an average weekly payroll of Rs, 25,000. It pays its employees on Friday. December 31, 2001 falls on Tuesday.
Solution to this question:
Adjusting entries
In the book of Richard Photo
as on Dec. 31, 2001
i.
Depreciation expenses a/c Dr. Rs. 44,000
Accumulated depreciation a/c Rs. 44,000
(To record the depreciation on equipment for 22 month i.e. March 1, 2000 to Dec. 31, 2001)
ii.
Unearned service revenue a/c Dr. Rs. 12,000
Service revenue a/c Rs. 12,000
(To record the service revenue earned of six-month)
iii.
Interest receivable a/c Dr. Rs. 240
Interest revenue a/c Rs. 240
(To record the interest on notes receivable for the two-month)
iv.
Salary expenses a/c Dr. Rs. 10,000
Salary payable a/c Rs. 10,000
(To record the payment due of salary for two days)
i. working note
Calculation of depreciation amount using the straight-line method
Yearly Depreciation = original cost – salvage value / life of asset
= 2,50,000 – 10,000 / 10
= Rs. 24,000
Depreciation for 22-month = 24,000 × 22 / 12 = Rs. 44,000
ii. working note
Amount of service revenue = Rs. 24,000 × 6 / 12 = Rs. 12,000
iii. working note
Interest for two months = 12,000 × 0.12 × 2 / 12 = Rs. 240
iv. working note
The salary for two days i.e. Monday and Tuesday = Rs. 25,000 × 2 / 5
= Rs. 10,000