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FIN611 Advanced Financial Accounting GDB 2 Solution Spring 2014

Crescent company incurred an expense of Rs. 5,000 by purchasing supplies from its three suppliers in year 2011. The company made payment to two of its suppliers in the same year and assured to make payment to the third supplier in year 2012. The company manufactured the goods from purchased raw material for the purpose of sale. It sold goods to its five customers in year 2011 by earning an income of Rs. 1,500 from each customer. Two of the customers paid for the sale in the same year but the others three customers promised to pay in the next year. The company’s financial year ended on December 31, 2011 and up to that time the company neither paid to its unpaid suppliers nor received the remaining receivable amount from its customers.
After the closing of financial statement (after balance sheet date) the following events were observed.
i. The management decided to close one of its manufacturing units because of low efficiency.
ii. A doubtful customer defaults and the provision has been made at 12%.
iii. The company purchased an asset on December 01, 2011 but the invoice received on January 7, 2012.
Required:
In the context of above case, discuss the following with the logical reasoning
1. In which year (2011, 2012 or both) supplies expenses of cash and credit will be recorded?
2. What will be the accounting treatment of income; whether it will be recorded in year 2011 or 2012 or both?
3. Will the events after balance sheet date be recorded as adjusting entries or not.

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