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    Lecture 67

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    hiddenseceret7

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    © All Rights Reserved
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    Lecture 67

    Uploaded by

    hiddenseceret7
    6 views3 pages

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    Copyright:

    © All Rights Reserved
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    Download as pdf or txt
    6 views3 pages

    Lecture 67

    Uploaded by

    hiddenseceret7

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
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    Question

    Solution
     Trading account is trading – cost of sale = gross profit.
     1. Value added tax means sales tax.
    o If price of one unit is 117 and out it 17 is tax. It means owner has 100.
    o An accounting standard says, if you have deducted an amount on behalf of someone
    else, it is not your revenue. Sale is always recorded at net.
     So, owner will record 100 in sales instead of 117.
     So, entry will be
     Cash (debit) 117
     Sale (debit) 100
     Sales tax payable (credit) 17
    o However, question says “sales exclusive sales tax.” Means sales tax is already deducted.
    So, same figure of sale will be used.

    Main point

     We paid 2,340,000 to supplier and 17% of it is sales tax which he has to pay to the
    government.
    o We will record purchased on cost because tax is adjustable. (Means it can
    be returned)
     It says 17% sales tax is included in this purchase.
    o Adjustable tax will not be added in the cost of the asset. If it was non-
    refundable, we would include it.
    o So, we have to subtract it.
    o We can do this as
     Assume total purchase (including tax) is 117%. And original
    purchase is 100%.
     We can find it using formula.


     2. It transportation cost will be included in cost of purchase.
     3. Polishing cost will also be included in cost of purchase.

     4. In intro, we do not do accounting of manufacturing business.


    o So, putting at warehouse is just like putting at shelf in our shop and its expense will be
    selling expense.
    o Selling expense is shown after gross profit but requirement is to only make trading
    account. So, we will ignore it.
     5. Entry will be drawings (debit) purchases (credit) as system is periodic.
    o We will subtract drawing from purchases either in front of purchases or under the
    closing stock in calculation of cost of sale.

    o Drawings are recorded at average rate (cost). But we did not had that rate and closing
    stock.
     Than we will record closing stock.

    Solution discussed orally in video 92 a 1:05:00


     If question is silent about a loss, we assume normal loss. But clear cases of abnormal loss (e.g.
    fire, theft, natural disaster etc.) are to be considered abnormal.

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