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Lecture 67

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6 views2 pages

Lecture 67

Uploaded by

hiddenseceret7
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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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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