Tutorial week 3

Answers
Answer 1 (a) A specific design of journals does not fit all
businesses. The design is impacted by the nature of
business (for e.g. retailer, service, wholesaler,
manufacturer)
The given entity uses special journals such as a cash
payments journal and cash receipts journal and purchases
journal to focus on purchases of goods and cash inflows
and outflows.
Answer 1 (b)
General Ledger
Accounts Receivable
1/3 Bal 1,5 8/3 Sale
20
s
retu
rn
31/ Sal 3,2 31/ Ban
3
es 00 3
k
Dis
Bal
4,7
20
Bal 3,4
40

80

1,1
87
13
3,4
40
4,7
20

Subsidiary Ledger
Bono & Co
1/3 Bal 540 3/
3
10/ Sal 2,2
3
es 00
2,7
40
1/4 Bal 2,2
00

Ban 540
k
Bal 2,2
00
2,7
40

U2 Ltd
1/ B 66 9/
3 al 0
3
0
66
0

Ba
nk
Dis

64
7
13
66
0

The Edge Ltd

1/3 Bal 320 8/
3
2/3 Sal
es

Sale 80
s
retu
rn
Bal
1,2
40
1,3
20

1,0
00
1,3
20
1/4 Bal 1,2
40
Accounts Receivable Schedule as at
$
Bono & Co
U2 Ltd
The Edge Ltd

2,200
0
1,240
3,440

.
.
.

Answer 2

(a) An asset is a resource controlled by the entity as a

result of past events and from which future economic
benefits are expected to flow to the entity.

(b) Perpetual method records all the transactions that will

changes the amount of inventory, including both
purchases and cost of sales. With this method, cost of
goods sold can be determined at any anytime in the
period. Also, it is possible to reveal the inventory loss with
a stock take at the end of the period.

(c) Periodic method records the amount of purchases and

does not record the cost of goods sold. Cost of goods sold
is determined in the end of the month with a stock take,
by subtracting the stock take result from the amount of
goods available for sale. Also, the inventory loss will be

recorded as cost of goods sold.

.

(d) There are three components, costs of purchase, costs

of conversion and other costs incurred in bringing the
inventories to their present location and condition.

(e) Product cost is the primary cost and it is material. It

includes all the costs of purchasing, conversion, and other
costs like storing and transporting. For example, in buying
equipment, it involves invoice cost and installation cost.
Period cost includes incidental costs. These costs take a
small part in the whole cost, and they do not have a direct
relationship with the products. For example, the cost of
phone calls and faxes are part of period cost.

(f) Specific identification is required when items are not

ordinarily interchangeable, or where goods and services
produced are segregated for specific projects. Average
cost can be used when items are ordinarily
interchangeable, or where goods and services produced
are not segregated for specific projects. FIFO means firstin-first-out. Companies with FIFO method sell the oldest
inventories first. LIFO means last-in-first-out. Companies
with LIFO method sell the newest inventories first.

(h) The estimated selling price in the ordinary course of

business subtracts the estimated costs of completion and
estimated costs necessary to make the sale. For
example, if a seller wants to sell damaged stock, rectifying
cost and discount cost is needed.

(i) Inventories shall be measured at the lower of cost

and net realisable value. This rule aims at avoiding
overstating assets and profit in times of uncertainty.

(J). The inventories may be in inferior quality, or they are

out of fashion, or the market is over producing this kind of
good in the current period.
Yugaanshu Sharma
24524581