Total Marks Starting Date Closing Date Status Question/Descripti on

20 Friday, May 10, 2013 Tuesday, May 14, 2013 Closed

The management of XYZ Company has presented draft financial statements for the year ended 30 June 2012 to the Board of Directors. There were some material points that were unresolved. 1. The flood of July 2012 destroyed one of the companys buildings. The estimated value of the building was Rs. 5m, but it was insured for only Rs. 4m. The companys going concern status is not endangered. The directors are unsure what adjustment or disclosure, if any, should be made. 2. There were some goods with cost of Rs. 130,000, and these goods were part of the closing inventory at 30 June 2012. These goods were sold for Rs. 70,000 after their deterioration in the inventory stores. The directors of the company are not sure whether to adjust he figure of the inventory downwards by Rs. 60,000 or a loss should be recognized when the inventory deterioration was disclosed. 3. In June 2012 Company has supplied some goods to a customer on a sale on return basis. The value of the goods was Rs. 120,000. The company recorded this transaction as credit sale, and as a result of this transaction a profit of Rs. 30,000 was earned by the company. However, the customer returned all goods in fine condition in July 2012. Requirement: Suggest the correct treatment of each item to the Board of Directors. Give reason for your answer and state clearly the effect, if any, on the income statement and Balance sheet of the company.

Teachers Comment/Solution

Dear

Students,

Result of GDB No. 01 of Financial Statement Analysis (FIN621) has been declared. Teachers Comments

The basic purpose of Graded Discussion Board (GDB) is to develop learning skills among the students so that they can provide hands-on solutions to the problems posed to them in their practical life. Here are some points to share with you observed during marking so that you may improve in future while submitting any graded activity. Marks to students have been awarded according to the original and genuine efforts put in by the students. Other observations while marking the GDB are: Most of the students have missed the main theme of the GDB. Many students have given irrelevant details which have nothing to do with the GDB answer. Many students have given Journal entries which were not required Part C of most students was wrong.

Here

are

few

suggestions

which

may

help

the

students

to

improve

in

future:

They must analyze scenario and focus the comments according to the requirement of the scenario; If scenario demands only few points, then there is no need to add unnecessary material which shows ambiguity in the concepts; Avoid the habit of copying and pasting material in as it is from any website or book. You should read the material, understand the concept and write it in your own words. Focus on relevant, to the point and clear answer in your GDBs. Finally, avoid producing ambiguous and irrelevant material in your answers.

Student's Message: GDB No.1 FIN 621 Mc110200480

Ans: 1. \ Financial statement for the ended 30 the June 2012 but flood destroyed the company building in July 2012. Therefore no effect will be occur on financial statements. Therefore loss be of 1M in July 2012, not in 30th June 2012. 2. Cost of goods sold = 130,000 Receivables = 70,000 Hence Loss = 60,000 Thus there will be adjusting entries for the loss recognize when the inventory deterioration was disclosed Adjusting entry for loss is Profit and loss account = 60,000 Dr Adjusting entry Stock Account

3. Company supplied goods on credit on return basis, so for this adjusting entry will not be recorded because according to IAS 18 sale will not be recognized. That will on return basis or on credit