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FIN611 Advanced Financial Accounting Assignment 2 Solution fall 2012

When the financial statement of Local Industries Ltd. for the year ended December 31,
2012 was being prepared, it was discovered that due to arithmetical errors, inventories at
December 31, 2011 were understated by Rs. 30,000.
Following are the extracts from financial statement before the correction of error.
Income Statement
Particulars
Dec. 31,
2012
Dec. 31,
2011
Rs. Rs.
Sales 424,000 310,000
Less: Cost of sales

(300,000)

(204,000)
Gross Profit 124,000 106,000
Less: Operating expenses

(30,000)

(16,000)
Net Profit 94,000 90,000 Statement of Retained Earnings
Particulars
Dec. 31,
2012
Dec. 31,
2011
Rs. Rs.
Retained earnings at the beginning 164,000 84,000
Net profit for the year 94,000 90,000
Dividend paid (16,000) (10,000)
Retained Earnings at the end 242,000 164,000
Note: Paid-up capital of the company is Rs. 24,000
Required:
Prepare the following financial statements for the years 2011 and 2012 after
correcting the above mentioned error.
1. Income Statement; 07 Marks
2. Statement of Retained Earnings; & 07 Marks
3. Statement of Changes in Owners’ Equity. 08 Marks
(NOTE: 03 MARKS FOR GOOD FORMATTING AND PRESENTATION)


Solution:

Income statement
Restated
Particulars Dec 31 2012 Dec 31 2011
Sales 424000 310000
Cost of Goods Sold 330000 174000
Gross profit 94000 136000
Operating Exps 30000 16000
Net profit 64000 120000
Statement of Retained Earnings
Restated
Opening balance 84000
Profit 2011 120000
204000
Less: Dividend 2011 10000
Balalnce at 2011 194000
Profit 2012 64000
258000
Less: Dividend 2012 16000
Total Retained Earnings 242000
Statement of changes in eqity
2012 2011
opening balance 194000 84000
Net Profit 64000 120000
258000 204000
Dividend Paid 16000 10000
242000 194000
OR
2012 2011
opening balance 164000 84000
adjustment 30000
Net Profit 64000 90000
258000 174000
Dividend Paid 16000 10000
242000 164000




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