Test 3_sem2_06 - Question 1 Accounting for Accounts...

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Question 1 Accounting for Accounts Receivable (20 marks) The following is an aged analysis of accounts receivable at 31 March 2006, for Waite Panel and Paint , a firm that repairs motor vehicles. Age of Accounts Balance Current $200,750 Overdue 30-60 days 80,024 61-90 days 48,080 Over 90 days 25,420 Total $354,274 In reviewing the customers’ records, the firm decided to write off $4,824, being the amount due from Xcars Ltd. This amount is included in the over 90 days accounts. The firm uses the allowance method to account for credit losses. On 31 March 2006, the credit balance of the Allowance for Doubtful Debts account was $3,520 before any adjustment. Based on past experience, the management of the firm believes that an allowance of 3% should be provided on overdue accounts receivable. REQUIRED: a) Prepare ledger accounts for Accounts Receivable Control and Allowance for Doubtful Debts as they would appear in the General Ledger at 31 March 2006 including the write off of the bad debt and the adjustment to the allowance for doubtful debts for the year. Show your workings. (6 marks) b) Prepare an extract from the Income Statement to show the Financial Expenses and an extract from the Balance Sheet to show Accounts Receivable at 31 March 2006. (4 marks) c) A cheque for $1,530 was received from T-Performers Ltd on 4 April 2006. This account had previously been written off as a bad debt in the accounts of Waite Panel and Paint. Prepare general journal entries to record the collection of the bad debt. (4 marks) d) Identify the impact on the financial statements of the firm if no allowance is provided for credit losses. (3 marks) e) Outline three policies or procedures that a firm might put in place in order to control and minimise credit losses. (3 marks)
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Question 2 Accounting for Property, Plant and Equipment (22 marks) Unless otherwise stated, all figures are inclusive of GST. Part A Somerville Brothers Ltd acquired land, buildings and office equipment on 1 January 2006 for a lump sum payment of $905,400 (GST inclusive). Relative values of each asset were determined by an independent valuer. These figures were given as follows: Land $565,000 Buildings $390,000 Office Equipment $45,000 REQUIRED: Prepare a general journal entry (or entries) to record the cash purchase of the assets by Somerville Brothers Ltd. Show your working. (6 marks)
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Test 3_sem2_06 - Question 1 Accounting for Accounts...

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