CHAPTER 9 Sample Solution
Insurance and Rent Receivable In the month it occurs: track actual transaction €4,800 in insurance and €3,300 in rent receivable. Adjust bank €3,300 less €4,800. This leaves bank with €1,500 more in overdraft. This is why it is shown as a positive figure.
Purchase of a new business - create goodwill (Assets = Liabilities)
Assets Buildings
Depreciation Delivery Vans Depreciation Stock
Debtors
Insurance Goodwill
Liabilities Creditors Bank
Wages Due
Ordinary Shares
Share Premium
P & L Balance
Revaluation Reserve Rent
Bad Debt Recovered Adjust Debtors figure to show what he now owes you – remembering that bad debt would have already been written off. P & L figure shows the bad debt recovered as a gain.
Revaluation Increase the asset with the revalued amount €170,000. Write off depreciation to date €25,000. Create revaluation reserve (any increase + depreciation on revaluation)
170,000 + 25,000 =195,000
500,000 [2] (25,000)
82,000 [2] (8,200) 61,000
46,000 [2] 1,200
[2] Jan 80,000 3,500 8,000 [2] 7,500 657,000 99,000 1,000 4,800 195,000
44,000 [2] 9,900 1,800
550,000 [2]
20,000 [2] 31,300
3,000 [2] (1,500) 80,000 16,000 [2] 2,500 [2] [2] 3,300 657,000 99,000 1,000 4,800 195,000 195,000 [2] (3,000)
Authorised Share Capital Don’t go over Authorised Share Capital – put excess into Share Premium. Authorised in Giovanni question = €650,000. In September they had already issued €630,000, thus only another €20,000 can be issued. The remaining €10,000 goes into Share Premium.
Put P & L figure (amount for this year only) Insurance 4,800 × 9⁄12 = 3,600 + 1,200 = 4,800 (Note €1,200 was already prepaid for this year) Rent Receivable 3,300 × 10⁄11 = 3,000 (Note it is only paid for 11 mths in advance) P & L 3,000 gain less 4,800 expense = (1,800) Total Column shows balance due or prepaid for next year. Insurance 4,800 × 3⁄12 = 1,200 Rent Receivable 3,300 × 1⁄11 = 300
123 [2] 1,500 [2] (30,000) [2] [2] [2] 20,000 10,000 [2] (14,800) [2] (1,800) [4] (1,000) [2] 1,000 [2] 4,800 Feb Mar [2] [2] Aug
170,000 25,000
Remainder of bad debt recovered 100% = 2,500 40% left = 1,000 Debtor reduces by 1,000 Bank overdraft reduces by 1,000. This is why it is shown as a negative figure.
Depreciation
Buildings 750,000 @ 2.5% x 4/12 = 6,250 Delivery Vans = 8,550 P & L 6,250 + 8,550 = 14,800
Sept Oct Dec Dec TOTAL 750,000 (6,250) 85,500
[2] [2] [2] (1,000) [2] (4,800) (6,250) (8,550)
(16,750) 61,000 54,000 1,200 7,500
[1] 0 (1,000) (14,800) (4,800) 936,200 47,000
(21,100) 1,800
650,000
46,000 17,200
195,000 [1]
300 0 (1,000) (14,800) (4,800) 936,200
9
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