exam pack from 2015 to 2017.pdf

3 a commission was received before performance or the

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3. (a) Commission was received before performance or the actions that give rise to income. When the money was received, it was credited to the income account. Since it belongs to future periods, it should be deducted from the current year`s income and it should be matched to the periods when performance of the actions that result in income is done. As a result debit commission received (reduction in income). (b) The commission received in advance should also be recognised as a liability. It will only become the income when the entity has fulfilled the requirements. The liability income received in advance should be credited. 4. (a) The debt which will not be recovered is a business expense as the income recognised upon the sale will no longer be receivable. As a result, we credit the credit losses expense. (b) The debtor (an asset) is going down as it is no longer recoverable. This should be credited in the debtors control account and/or J. John`s account in the debtors` ledger. 5. (a) Depreciation is an expense and it should be debited. It is a measure or estimation of the loss in value of non-current assets. In this case, it is being calculated using the diminishing balance method. It is calculated as follows: Percentage (%) x (Cost –Accumulated Depreciation) (b) Depreciation reduces the value of non-current assets. A reduction in assets is credited to the asset account. When non-current assts reduce due to depreciation, the depreciation for the period is credited to the accumulated depreciation account according to the International Accounting Standards (IAS16). 6. (a) Water and electricity accrued represents an expense for the current period since the electricity was used during the period for the generation of income. To add to the expenses we debit the water and electricity account. (b) The water and electricity owing is a liability as it represents an obligation to pay money resulting from present activities, that is, the electricity supplied. The liability is credited to the expenses accrued account 7. (a) The insurance paid in advance represents our money; therefore, it should be recognised as an asset: Prepaid expense. It will only belong to the insurance company in the relevant future periods. This asset is debited in the Insurance Prepaid (Asset account). (b) When this insurance was paid it was debited in the insurance expense account. Since this expenditure does not belong to this period, it should be deducted from the insurance expense account. This is credited to the insurance account. 44 | P a g e
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FAC1502 2014 45 | P a g e
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FAC1502 2014 SOLUTION 3: INCOMPLETE RECORDS (a) The statement of assets and liabilities is used in most instances to determine equity through the application of the Basic Accounting Equation (BAE); Assets= Equity + Liabilities; transformed to, Equity= Assets – Liabilities.
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