Accounting assignment.pdf

7/24/2019 Accounting assignment.pdf

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Assignment

Prepared y

oham ed Safwat ostafa


2/18

Part 1:

1. Which of the following do not considered as a GAAP principles:

a) Conservatism.

b) Matching.

c) Segregation of duties.

d) Objective.

Correct answer is: c) Segregation of duties.

Justification:

GAAP are common set of accounting principles, rules, standards and procedure that used by

companies to prepare its financial statement

GAAP are:

The business entity concept: accounting is separate from personal affairs from its owner

The going concern concept: the business will continue to operate

Conservatism: accounting should be fair and reasonable

Objective: recorded according to objective evidence

Time line: accounting take place over known period of time

Matching: each revenue recognized should recognize the cost related

Consistency: apply same principle and accounting policies from period to period

Materiality: cost and benefit should take place in gathering information

So segregation of duties is not considered as GAAP principles


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2. One of the following is not a credit nature account:

a) Capital.

b) Accrued interest income.

c) Capital Gain.

d) Long term loans.

Correct answer is: b) Accrued interest income.

Justification:

Capital is considered as liability of the business to the owner so it is credit in nature

Capital gain is a profit come from disposition of asset and this profit considered as

revenue which is credit in nature so capital gain is credit nature

Long term loans is non-current liability so it is credit nature

Accrued interest income is interest which is not collected yet so it considered as asset

which is debit nature.

3. Assets should be classified as Current assets when it is expected to be realized within ..

a) One Month.

b) Operating business cycle.

c) Three months.

d) C or B.

Correct answer is: b) Operating business cycle.

Justification:

Current asset is asset that expected to convert into cash, sell, or consume in operation within a

single operating cycle which generally considered 12 month


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4. When company purchases an asset on credit, the accounts that will be affected on the journal

entry are:

a) Cash & Assets.

b) Assets & Capital.

c) Assets & Payables.

d) Investments & Payables.

Correct answer is: c) Assets & Payables.

Justification:

When buy asset on credit asset account will increase and also payable will increase and

it will reported as Debit asset credit payable

So answer a) Cash & Assets is not correct as company purchase asset on credit so cash

account will not be affected

b) Assets & Capital is not correct as capital account will not be affected as nature of

asset is not mentioned its nature

d) Investments & Payables is not correct as type of asset not mentioned for invest or

other thing .

5. Inventory opening balance + Purchases Inventory ending balance = .:

a) Operating expenses.

b) Other operating expenses.

c) Depreciation of inventory.

d) Cost of Goods sold.

Correct answer is: d) Cost of Goods sold.

Justification:

This is one of the fundamental equation in accounting

For example : if opening balance of inventory is 100,000 USD and we buy goods with

50,000 USD and the inventory ending balance is 90,000 USD

The cost of goods sold will be 60,000 USD


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6. Entity A purchased a machine with USD 100,000. The companys technician expects the

machine to be used for 5 years only. Five years depreciation period means . % each year.

a) 20%.

b) 5 %.

c) 15%.

d) 25%.

Correct answer is: a) 20%.

Justification:

When machine expected to be used over 5 years only, its value after 5 years should be zero so

it depreciation by year will equal 100%/5 years = 20% each year

7. Following the previous information, in year TWO the Fixed Assets Net line item in balance

sheet will equal to:

a) USD 80,000.

b) USD 20,000.

c) USD 60,000.

d) USD 40,000.

Correct answer is: c) USD 60,000.

Justification:

Depreciation is 20% per year so in 2 years machine will be depreciated by 40% so the remaining

will be 60% (fixed assets net)


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8. The depreciation expense journal entry will affects the two accounts:

a) Depreciation expenses and provision.

b) Depreciation expenses and accumulated depreciation.

c) Depreciation expenses and allowance for doubtful debts.

d) Depreciation expenses and accrued expenses.

Correct answer is: b) Depreciation expenses and accumulated depreciation.

Justification:

Accumulated depreciation is total depreciation of fixed assets and it will be charged as expense

since the asset was made available for use and this account is credit nature so it will appear in

balance sheet as reduction of asset amount

So Journal entry for depreciation expense will be:

Debit depreciation expense (income statement)Credit accumulated depreciation (balance sheet)

Provision is a liability of uncertain time or amount so answer A is not correct as depreciation

increase with fixed amount within certain period

Allowance for doubtful debts is reduction of amount of account receivables and it represent

amount of receivables that will not be paid by customer so answer C is not correct

Accrued expenses is expense which has been incurred but not yet paid so answer D is not

correct

9. Company A has the following balances at the yearend; Non-current assets equal 30,000,

current assets equal USD 15,000 and Equity with USD 25,000. The total liability balance will

be:

a) USD 70,000.

b) USD 20,000.

c) USD 40,000.

d) USD 45,000.

Correct answer is: b) USD 20,000.

Justification:

Equity= Total asset (non-current + current) liabilities (current +long term liabilities)


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25,000 = (30,000 + 15,000) liabilities

Liabilities = 45,000 25,000 = 20,000

10. Method of recording that recognizes Costs when deserved, rather than when paid is:

a) Conservatism.

b) Matching.

c) Materiality.

d) Accrual Base.

Correct answer is: d) Accrual Base.

Justification:

Accrual base is method of recording that recognize economic events regardless of when cash

transaction is paid so it give more accurate picture about company situation as it allow

combination of current cash inflow/ outflow with future expected cash inflow / outflow

Conservatism, Matching and Materiality are GAAP

Conservatism: accounting should be fair and reasonable

Matching: each revenue recognized should recognize the cost related

Materiality: cost and benefit should take place in gathering information


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Part 2

1. What do we mean by Accounting Cycle?

Accounting Cycle: is a series of steps which are repeated every reporting period. This

process starts with making accounting entries for each transaction and goes through closing

the book

It consist of 8 steps:

1. Collecting and analyzing data from transactions and events.

2. Putting transactions into the general journal.

3. Posting entries to the general ledger.

4. Preparing an unadjusted trial balance.

5. Adjusting entries appropriately.

6. Preparing an adjusted trial balance.

7. Organizing the accounts into the financial statements.

8. Closing the books.

Preparing a post-closing trial balance to check the accounts.

1. Transaction

2. Journal entries

5. Worksheet

6. Adjusting

journal entries

7. Financialstatement

8. Closing the

books

3. Posting

4. Trial balance

Accounting

Cycle


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2. Medical Company established on July 1, 2014 with USD 50 000 share capital. Also, it had

issued a bond for 5 years converted to share capital at par value any time with USD 15 000

at 8% interest per annum.

At the year end the company converted 50% of the bonds payable to shares and paid the

rest of the payable amount. You are required to prepare the journal entries on first of

July & at the end of December?

Journal entries

July 1, 2014

Dr Cash 65,000

Cr Capital 50,000

Cr Bonds payable 15,000

December 31, 2014

Dr Bond payables 15,000

Dr Interest expense 600

Cr Capital 7,500

Cr Cash 8,100

Calculations:

After 6 month from July 1, 2014 to December 31, 2014 50 % of the bond payable converted

to shares so capital increase by 7,500 USD (15,000 / 2)

Rest of the bonds paid (7,500)

Interest expense will be (6 months) =15,000 X (6/12) X 8%= 600

So cash will decrease by 7,500+600 = 8,100


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3. ABC Company has the following balances in USD and the end of its first financial year:

Net loss (400,000).

Depreciation Expenses 30,000.

Interest expenses 50,000.

Loan 270,000

Receivables 100,000.

Payables 90,000.

Tax paid 50,000

Cash & Cash equivalents 60,000.

Assets 160,000

How much is the Cash generated or used from/in operating activities?

ABC Company

Statement of cash flow for the year ended

(Amount in USD)

Cash flow from operating activities

Net loss before taxation (400,000)

Adjusted for;Depreciation expenses 30,000

Interest expenses 50,000

_____

Loss before changes in working capital (320,000)

Receivables (100,000)

Payables 90,000

_____

Cash used in operation (330,000)

Tax paid 50,000

____

Net cash flow used in operating activities (280,000)

So cash used in operating activities for ABC Company is 280,000 USD

4. What are the main differences between Current & Non-Current Assets?

Non-current assets Current assets

Realized after 12 months

Used for long term investment

Not related to operation except fixed

assets

Realized within 12 months

Used for short term trading

Related to operation

Cash and cash equivalents

(ex.: inventory)


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5. ABC Company made the following transactions during September 2015; you are required to

prepare the entry or entries for each transaction along with the description needed,

T accounts & the trail balance for September.

- The company sold goods on credit with USD 35 000, in which USD 19 000 were collected in cash.

- The company incurred expenses with USD 19 000 in which USD 11 000 were paid in cash.

- The companys total purchases from its sole supplier RED ROSE is 12,000 units with $ 0.8 per

unit. The company paid USD 5 000 to this supplier.- The overdraft opening balance were USD 5 000.

- The cash opening balance were USD 5 000.

Cost of goods purchased from RED ROSE = 12000 * 0.8 = 9600 USD

Journal entries

1-

Dr Receivables 35000

Cr Revenue 35000Goods sold on credit with 35000 USD

2-

Dr Cash 19000

Cr receivables 19000

19000 USD Cash collected from selling goods on credit

3-

Dr expenses 19000

Cr accrued expense 19000

Company incurred expenses with 19000 USD

4-

Dr accrued expense 11000

Cr Cash 11000

Expenses paid with 11000 USD

5-

Dr Inventory 9600

Cr RED ROSE payables 9600

Purchasing from RED ROSE by 9600 USD


12/18

6-

Dr RED ROSE payables 5000

Cr cash 5000

RED ROSE payables paid with 5000 USD

T Account

RevenueDR CR DR CR

DR CR

Cash

Opening 5000

Receivables 19000 Expenses 11000

Payables 5000

Total 24000

BF 8000

Total 24000

CF 8000

Goods sold 35000BF 35000

35000 35000

CF 35000

Receivables

Receivables 35000 Collected 19000

Total 35000

BF 16000

Total 35000

CF 16000

DR CR

Expenses

TB Bal. 19000Paid cash 11000

Total 19000

BF 8000

Total 19000

CF 8000

Total 9600

DR CR

RED ROSE Payables

Purchasing

goods

9600Cash pay 5000

BF 4600

Total 9600

CF 4600

DR CR

Inventory

Purchasing

goods

9600 BF 9600

Total 9600 Total 9600

CF 9600


13/18

ABC Company trial balance

As of September 30, 2015

(Amount in USD)

AM. Liabilities Assets AM.

35000

4600

5000

8000

Revenue

RED ROSE payables

Over draft

Accrued expenses

Cash

Inventory

Receivables

Expenses

8000

9600

16000

19000

52600 Total Total 52600


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Part 3

1

Dr Cash 25000

Cr Revenue 25000

Unrecorded goods sold with USD 25000

2Dr COGS 17000

Cr Inventory 17000

Unrecorded goods sold with cost 17000

3

Dr Payables 10000

Cr Cash 10000

Payables paid with USD 10000

4

Dr Accrued expenses 4000

Cr Admin expenses 4000

Corrections of extra recorded accrued expenses

5

Dr Cash 50000

Cr Capital 50000

Capital increased with USD 50000

6

Dr Inventory 22000

Cr Cost of goods sold 22000

Returned goods sold with cost USD 22000

7

Dr Revenue 28000

Cr Trade receivables 28000

Returned goods sold with USD 28000

8

Dr Provision expenses 5000

Cr provision liabilities 5000

Provisions required for legal courts


15/18

ABC Company trial balance as of December 31, 2X06

(Amount in USD)

Account Balance

Fixed assets 130,000

Prepaid Expenses 82,000

Investments 93,000

Inventory 110,000Trade receivables 69,000

Cash & Cash equivalents 129,000

Provisions (37,000)

Provisions expense 5000

Trade payable (42,000)

Due to related parties (77,000)

Short term loans (86,000)

Accrued expenses (13,000)

Capital (200,000)

Reserves (70,000)

Retained earnings (102,000)

Revenue (317,000)

Cost of Goods sold 264,000

Interest income (46,000)

Capital gain (52,000)

Other operating expenses 83,000

Admin Expenses 97,000

Forex gain (64,000)

Tax expenses 44,000


16/18

ABC Company income statement for the year ended December 31, 2X06

(Amount in USD)

Revenue 317,000

Cost of Goods sold 264,000

____

Gross profit 53,000

Admin Expenses (97,000)

Other operating expense (83,000)

Other operating revenue 116,000

____

Loss from operation (11,000)

Finance cost Net 46,000Provision expenses (5,000)

____

Net profit before tax 30,000

Tax expense 44,000

____

Net loss after tax (14,000)


17/18

ABC Company balance sheet as of December 31, 2X06

(Amounts in thousands USD)

Non-current assets

Fixed assets 130

Investments 93

____

Total non-current assets 223

Current assets

Inventory 110

Receivables 69

Debtor and other debit balance 82

Cash and cash equivalent 129

___

Total current assets 390

Current liabilities

Provisions 37

Payables 42

Creditors 13

Due to related parties 77

Short term loans 86

___

Total current liabilities 255

___

Working capital 135___

Total investment 358

Equity

Capital 200

Reserves 70

Retained earnings 88

___

Total equity 358


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ABC Company

Notes of the Financial Statement for the year ended as of December 31, 2X06.

(Amounts in USD)

1- Debtors & Other debit balances

Prepaid Expense 82,000

Total Debtors 82,000

2- Creditors

Accrued Expenses 13,000

Total Creditors 13,000

3- Working capital

Total current assets 390,000

Less: Total current liabilities (255,000)

Working capital 135,000

4- Total Investment

Total non-current assets 223,000

Plus: Working capital 135,000

Total Investment 358,000

5- Retained Earnings

Retained Earnings from trial balance 102,000

Less: Net Losses from income statement (14,000)

Retained Earnings 88,000

6- Other operating Revenue

Capital gain 52,000

Plus: forex gain 64,000

Total other operating Revenue 116,0007- Finance cost net

Interest income 46,000

Finance cost net 46,000

Documents

Accounting assignment.pdf