MGT101 Financial Accounting GDB 1 Solution Fall 2014

Learning Objectives:

To develop an understanding regarding the treatment of elements of financial statements

CONSTRUCT:

Star Corporation runs a kitchen and cookware shop in Lahore. Company book-keeper has just extracted the year-end trial balance shown below. Note that the extracted trial balance includes the stock value at the start of the year; closing stock valuation is given after the extracted trial balance. The stock of goods for resale is valued by the business at the end of each financial year, and the valuation is subsequently entered into the book-keeping system, for the purposes of financial reporting.

Extracts of Trial balance of Star Corporation, as at 30 June 2013

Description

Dr.

Rs.

Cr.

Rs.

Treatment
Stock at 1 July 2012

100,000

Trading A/C (Cost of Goods Sold)
Shop Fittings

53,000

?

Value Added Tax

6,500

?

Shop Expenses

9500

?

Additional Information: Stock at 30 June 2013 was valued at Rs. 72,000

DISCUSSION QUESTIONS:

  1. You are required to recognize the accounting treatment for each extracted trail balance item according to the given example highlighted with red color.

Solution:

Accounting Treatment of Terms in Trial Balance

  • Shop Fittings                                             Assets (Balance Sheet)
  • Value Added Tax:                                     Liability (Balance Sheet)
  • Shop Expenses                                         Expense  (Profit and Loss Account)

  1. Why value of stock at 30 June 2013 is reported as additional information rather than appearing in trial balance? Answer with logical reasoning.

Solution:  Stock at the end is provided because it was not sold during that financial year 2012-13, so the Closing Stock calculated and will be added to the next financial year 2013-14

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