Week+7 - FINANCIAL ACCOUNTING (ACC1006S) SUGGESTED...

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SUGGESTED SOLUTIONS TUTORIALS HANDED IN ON 21 SEPTEMBER 2009 Tutorial 20 (solution) Adj A 004 1.1 (3 marks) 30/6/200 6 Dr Sales income (1) 3 000 (1 ) Cr Income received in advance (L) (1) 3 000 9 000/3 = 3 000 per month 1.2 (max 7 marks) A liability account (income received in advance) was credited because the amount meets both the liability definition and the recognition criteria as demonstrated below. (½) Definition: A present obligation (½) As at 30 June 2006, the business owes training to the customer, as the customer has paid R3 000 for training in July. (1) Arising from a past event (½): The receipt of R3 000 by the business has given rise to the obligation. (1) Settlement of which is expected to result in an outflow of economic benefits from the business in the future (½) Future economic benefits (FEBs) are expected to flow out of the business in the form of time Adam will have to give to training the customer or if Adam cannot provide the training he will refund the customer their money. (1) Recognition criteria: The cost/value of the liability is reliably measurable (½) Source documents such as a copy of the receipt issued by the business would show the amount of R3 000 relating to the value of providing the training in July 2006. (1) The outflow of future economic benefits is probable (½) There is no indication that Adam is unlikely to continue to instruct the customer. Alternatively, if he cannot provide the training, he will more than likely repay the R3 000 to the customer, as he will not want to ruin his reputation by not reimbursing him. (1) Therefore, the amount should be recognised as a liability as it meets both the definition and recognition criteria. 2.1 (3 marks) 1/7/2005 Dr Rent expense (1) 3 500 (1 ) Cr Prepaid rent (A) (1) 3 500 3 850 x 100/110 = 3 500 2.2 (7 marks) Rent expense Page 1 of 5 1/7/2005 Prepaid rent (½) 3 500 (½) 30/6/2006 Prepaid rent (½) 3 850 (1) 31/7/2005 – 30/11/2005 Bank (½) (5 x 3 500) 17 500 (1) 30/6/2006 Profit & loss (½) (6 x 3 500) + (6 x 3 850)
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This note was uploaded on 02/28/2012 for the course ACC !006S taught by Professor Jaquiqueue during the Spring '11 term at University of Cape Town.

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Week+7 - FINANCIAL ACCOUNTING (ACC1006S) SUGGESTED...

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