Question

ACC201: Financial Accounting

Natsu Pte Ltd (“NPL”) is a company incorporated in Singapore and uses the Singapore Financial Reporting Standards (“FRSs”). Its financial year end is 31 December. It is in the retail business. The unadjusted trial balance of NPL as at 31 December 20X1 was as follows:

Account Title	Debit		Credit
	$		$
Cash	136,000
Accounts receivable	112,400
Inventory	16,600
Purchases	120,000
Purchase returns			5,000
Prepaid rental	24,000
Building	4,800,000
Accumulated depreciation - Building			96,000
Accounts payable			48,400
Share capital			4,000,000
Retained earnings			688,000
Sales revenue			805,800
Salaries expense	504,400
Utilities expense	51,000
Notes payable - short term			100,000
Unearned revenue			10,000
Salaries payable			11,200
	5,764,400		5,764,400

Additional information:

1. 1. NPL uses the periodic inventory system. Stock count done at the end of the year indicated that the ending inventory is $10,000.
2. 2. On 1 September 20X1, the company paid $24,000 to rent a temporary space for a year to store some materials for a project.
3. 3. The 6-month notes payable of $100,000 issued on 1 November 20X1 carries an annual interest rate of 6% to be paid on the maturity date.
4. 4. The company made a sales of $46,000 to a customer during the month of December 20X1. The customer had been billed but would only pay NPL in 20X2. This has not been accrued.
5. 5. For the utilities incurred in December 20X1, the account clerk had made the following entries: Debit Salaries expense $2,800 and Credit Salaries payable $2,800.
6. 5. The unearned revenue of $10,000 was due to a cash payment by customer to NPL in November 20X1 for goods to be delivered in December 20X1. NPL delivered half of the goods in December 20X1.
   6. The building of $4,800,000 was purchased on 1 January 20X0 and depreciated on a straight-line basis over fifty years. NPL expects zero residual value at the end of its useful life.

Required:

c. Prepare the Balance Sheet for NPL as at 31 December 20X1, incorporating all the necessary adjustments. (14 marks)

Answer 1

Adjustment Entries
	Debit	Credit
Rent Expense	$8,000
Prepaid Rent		$8,000
(being the rent paid for the period 09/01/2011 to 12/31/2011 for
4 months charged from prepaid rent)
	Debit	Credit
Interest Expenses	$1,000
Interest Payable		$1,000
(being the interest on 6 months Notes payable accrued for the
period 11/01/2011 to 12/31/2011 for 2 months, ($ 100,000 * 6%)
=$ 6,000 *2/12 = $ 1,000)
Note on Customer billed for Sales
Since, the customer has been billed, we assume that the amount of
$ 46,000 has been included in Sales as well as Account Receivable.
No adjustment entry is required.
	Debit	Credit
Salaries Payable	$2,800
Salaries Expenses		$2,800
(being the utilities expenses wrongly entered in Salaries now
reversed)
	Debit	Credit
Utilities expense	$2,800
Utilities Payable		$2,800
(being the utilities expense incurred for Dec 2011 accrued)
	Debit	Credit
Depreciation Expense	$96,000
Accumulated Depreciation - Building		$96,000
(being the depreciation expense on Building for the year 2011)
Working of Depreciation Expense
Purchase Value of Building		$4,800,000
Less: Residual Value		$0
Depreciable Value of Building		$4,800,000
Useful life (in years)		50
Annual Depreciation Expense = Depreciable Value/Useful Life		$96,000
	Debit	Credit
Unearned Revenue	$5,000
Sales		$5,000
(being the goods delivered against the cash payment made in Nov
2011 accounted for)
NPL Limited Income Statement for the year 2011
	Amount	Amount
Sales		$810,800
Beginning Inventory	$16,600
Add :Purchase less Purchase Return ($ 120,000 less $ 5,000	$115,000
Less: Ending Inventory	($10,000)
Cost of Goods Sold		$121,600
Gross Profit		$689,200
Expenses
Salaries	$504,400
Less: Incorrect entry rectified	($2,800)	$501,600
Utilities	$51,000
Add: Incorrect entry rectified	$2,800	$53,800
Interest expense		$1,000
Rent Expense		$8,000
Depreciation		$96,000
Total Expenses		$660,400
Net Profit		$28,800
NPL Limited Balance Sheet for the year ended Dec 31,2011
	Amount	Amount
Assets
Current Assets
Cash	$136,000
Accounts receivable	$112,400
Inventory	$10,000
Prepaid Rentals	$16,000
Total Current Assets		$274,400
Non- Current Assets
Building	$4,800,000
Less: Accumulated Depreciation	($192,000)
Total Non - Current Assets		$4,608,000
Total Assets		$4,882,400
Current Liabilities
Interest Payable	$1,000
Utilities Payable	$2,800
Salaries Payable	$8,400
Notes Payable - short term	$100,000
Accounts Payable	$48,400
Unearned Revenue	$5,000
Total Current Liabilities		$165,600
Owners' Equity
Share Capital	$4,000,000
Retaines Earnings
Beginning Balance	$688,000
Add: Current year's profit	$28,800
Total Owners' Equity		$4,716,800
Total Liability & Owners' Equity		$4,882,400