Question

You have just joined Western products Limited as a Finance Manager, on your first day of joining you viewed the trial balance of the company and have detected that there is a short credit of £ 6,264 as at June 30, 2017 A suspense account was opened for the difference and the profit for the year was then calculated at £ 956,180                                                  
                                                  
                                                  
                                                  
Upon investigation, you discovered the following errors and adjusrtments were discovered:                                                  
                                                  
   An invoice of £ 3,700 was debited to purrchases but the goods were received after year - end and were not included in the closing inventory.                                              
1)                                                  
                                                  
2)   Store equipment costing £ 8,100 and having a book value of £ 3,600 was sold for £ 2,500. Cash was debited and store equipment was credited. No other entries were made.                                              
                                                  
                                                  
3)   A cheque of £ 1,850 received from a customer was dishonoured on June 25,2017 but no entry was made in the books. Cash there against was received after year - end.                                              
                                                  
                                                  
4)   Purchase of office equipment costing £ 15,200 was entered in the purchases account. Depreciation on office equipment is provided at the rate of 10%.                                              
                                                  
                                                  
5)   A purchase invoice of £ 197 was debited to the supplier account as £ 917.                                               
                                                  
6)   Purchase returns book was under - casted by £ 650.                                              
                                                  
7)   The opening balance of furniture account was brought forward as £ 18,300 instead £ 13,800. Depreciation on furniture is provided at the rate of 10%.                                              
                                                  
                                                  
8)   A balance of £ 730 in the sales ledger is to be offset against a balance of £ 880 in the purchase ledger.                                              
                                                  
Required:                                                  
a) Prepare Journal entries to the adjust the above items                                                   
b) Recalculate the net profit for the year.                                                  

Answer 1

Solution : Since, the books & accounts of Company has closed, therefore, the rectification La only be made by passing adjustment entries and a Profit & Loss adjustment are will be opened for rectifizung the effect of erross on profits. As given in question : Suspense Ale credited by £6264 - and profit for the year was £956,180. Tournal Eutries in the Books a Western Soducts limited Amount in £ particulars Debit Credit closing Inventory Al Dr. 3,700 To frufit & loss Adjustulud Ale 3,700 Being closing Inveuten, indecasted, ) not consected Bopit & Loss Aeliustrulut Alle As. 11.no . To Store Equipment Alc 11.00 Being store equipment (£3600-£2500) sold beet recorded with less amount now rectified with loss on socle. Accounts Receivable Ale Dr. Isso To Cash Ale 1850 Being cheque dishonoured omitted to ) A be recorded now rectified. (4) Office Epeipment Ale Dr 157200 15200 7Brofit Elose Adjustrulut Ale Being office equipment wrougly entered in purchase Ale, now rectified Proofit & Loss Adjustment Ale or 1520 To Ollice Equiluuut nate V Being adjustment entry for depreciation on above office equipment (10%. of £ 1 soll 3) 1520

1/14 40 Sofia 650 Gjo 4520 4520 1 Suspeuse the To Sepplics Ale Being Supplies strand Ale was debited with £917 instead of crediting with £197, now credited with £114 (917+197) for rectifying the mistake and giving to effect of cossect credit 6 Suspeuse Ale Dr To Profit & Loss Adj. Ale Being purchase retur book was ) undercasted, now adjustment entry алдаа Suspeuse Al Do To furniture Ale (Being adjustment entry for excess I debit & tutull. (18 300- 13 800) 6) furniture Ale . Dr . To Befit 8 loss Aeljestueetan Being adjustruent entry has encess) des charged on above furniture 8 to Entry requised in this case, as both the ledger are revenue nalure, will affect the profit & Loss adjustment Ale cesseepovedingly Re-calculation a Net profit Net profit has the year Add increase in closing stock ress less on sale of store equipment (2) Add Decrease in penchases a (4) les Increase in depreciation (4) Add Increase in Pinchase Retuen Add Decrease in Dep. on fumiture (7) 450 450 in 956,180 + 3700 - 1100 + 15200 - 1520 t 650 + 450 (6) Adjusted Net profits 973,560