Financial Accounting I – IV
BBA | BBA-BI | BBA-TT | BCIS 1st
PU 2010 Fall Q. No. 2b
A review of some accounting records of candy company for 2009.
i. There are 5 salaried employees. Salaries are distributed on the 1st day of the following month. 3 employees receive a salary of Rs. 2,500 per month and 2 employees are paid Rs. 2,200 per month.
ii. The company owns a car and a typewriter. The car was purchased on June 1, 2007 for Rs. 72,000 and was estimated to be useful for ten years. The typewriter was acquired on February 1, 2009 for Rs. 12,000 & was estimated to be useful for five years. None of them has salvage value.
iii. There are two bills received. The six-month bill for Rs. 20,000 dated December 1, 2009, carries interest at 15% per annum. The 9-month bill for Rs. 30,000 dated June 1, 2009 carries interest at 16% per annum. Interest is receivable at the time of maturity of bills.
iv. On October 23, 2009, the company paid Rs. 20,000 for advertising campaigns in 2 magazines and debited prepaid advertisement. One of this monthly which was paid Rs. 12,000 to carry the advertisement in the following 12 issues published on every second day of every month. The other is a fortnightly that was paid Rs. 8,000 and agrees to carry the advertisement in the following 20 issues published on 5th & 20th day of every month.
v. Sales commissions are 2% of net sales, payable on the 5th day of
vi. On October 12, 2009, the company received Rs. 28,000 for services to be provided in the future. Later, the company provided services for Rs. 11,000.
Required: Adjusting entries for each item as on December 31, 2009. [8]
Solution:
Adjusting entries
In the book of Caney Company
As on December 31, 2009
i.
Salary expenses a/c Dr. Rs. 11,900
Salary payable a/c Rs. 11,900
(To record the salary payment due for the month)
ii.
Depreciation expenses a/c Dr. Rs. 13,600
Accumulated depreciation a/c Rs. 13,600
(To record the depreciation expenses for the Car and Typewriter)
iii.
Interest receivable a/c Dr. Rs. 3,050
Interest revenue a/c Rs. 3,050
(To record the interest revenue earned but not yet received)
iv.
Advertisement expenses a/c Dr. Rs. 3,600
Prepaid advertisement expenses a/c Rs. 3,600
(To record the expenses for advertisement)
v.
Sales commission expenses a/c Dr. Rs. 500
Sales commission payable a/c Rs. 500
(To record the payable of sales commission)
vi.
Unearned service revenue a/c (28,000-11,000) Rs. 17,000
Service revenue a/c Rs. 17,000
(To record the remaining of advance service revenue)
Working note:
i. Calculation of Salary expenses
Rs. 2,500 × 3 → Rs. 7,500
Rs. 2,200 × 2 → Rs. 4,400
Total Rs. 11,900
ii. Calculation of Depreciation expenses
Yearly depreciation for Car = 72,000 – 0 / 10 = Rs. 7,200
Total depreciation up to Dec. 31, 2009 = 7,200 × 19 / 12 = Rs. 11,400
Yearly depreciation for Typewriter = 12,000 – 0 / 5 = Rs. 2,400
Depreciation for 11-month = 2,400 × 11 / 12 = Rs. 2,200
Total depreciation = Rs. 11,400 + 2,200 = Rs. 13,600
iii. Calculation of Interest expenses
For First bill = Rs. 20,000 × 0.15 = Rs. 3,000.
For one month = 3,000 × 1 / 12 = Rs. 250
For second bill = 30,000 × 0.16 = Rs. 4,800
For seven month = 4,800 × 7 / 12 = Rs. 2,800
Total interest amount = Rs. 250 + 2800 = Rs. 3,050
iv. Advertising expenses
For monthly = 12,000 × 2 / 12 = Rs. 2,000
Fortnightly = 8,000 × 4 / 20 = Rs. 1,600
Total advertising expenses = Rs. 3,600
v. Sales commission
| Total commission (8,75,000 × 0.02) Less: Sales commission paid | Rs. 17,500 Rs.17,000 |
| Sales commission payable | Rs. 500 |